Everything You Need to Know Before Buying a Health Insurance Policy

Medical inflation in India continues to rise, with the Aon Global Medical Trends 2026 report and Willis Towers Watson (WTW) projecting medical inflation to remain in the range of 11 to 13%. To protect yourself and your savings from the rising cost of healthcare, having health insurance is essential.

However, choosing the right insurance plan that aligns with your healthcare needs can be confusing and overwhelming. As a result, many people struggle to select the right health protection they need.

Here’s a complete guide on health insurance to help you understand what health insurance is, how to select the right health insurance, and everything else you need to know about it.

What is a Health Insurance Policy?

Health insurance is a type of insurance that helps cover expenses incurred for medical treatments, surgeries, medication, and procedures received by the insured. It serves as a financial safety net against unexpected, high medical expenses.

The insured person, an individual covered under health insurance, does not have to bear the cost of covered medical expenses out of pocket. This helps protect their savings from being depleted due to excessive medical treatments. In return for this financial protection received under health insurance, the insured must pay a regular fee called ‘Premium’ to the insurance provider to keep their coverage active.

What Is the Difference Between Health Insurance and Health Insurance Policy?

Although the terms of health insurance and health insurance policy are often used interchangeably, they have distinct meanings. Health insurance is a broader concept aimed at managing the financial risk of healthcare expenses, while a health insurance policy is the legal contract consisting of the terms and conditions of the agreement between the provider and the insured. In simple terms, health insurance is the coverage you buy, whereas a policy specifies the premium you must pay, the coverage provided, who is covered under the policy, and how claims are settled.

Why You Absolutely Need Health Insurance

Most people think of health insurance as an expense, while it is a financial asset. It offers comprehensive medical coverage for a fractional premium, securing your life's savings against sudden healthcare costs.

Here’s why you need health insurance.

Rising Medical Inflation

India is one of the leading countries for rising medical inflation, with an expected increase of 11-13% in medical expenses in 2026. Health insurance protects you against the rising cost of healthcare and ensures you get the medical treatment and medication you require without worrying about the cost.

Financial Safety Net

Health insurance is a financial risk management tool that protects years of savings against medical expenses arising from sudden illness and accidents. It reduces the burden of medical expenses incurred, eliminating the need to take high-interest personal loans and falling into significant debt.

Preventive Care

Most health insurance plans cover expenses incurred in routine check-ups, diagnostic tests, and preventive medical care to encourage the insured to take care of their health. This also helps detect and manage serious illnesses at an early stage before they become critical illnesses.

Access to Quality Medical Care

Health insurance ensures access to quality medical treatment by covering medical expenses, enabling the insured to get the right and good quality medical treatments they require without hesitation.

Cashless Hospitalisation

Most health insurance providers provide cashless hospitalisation facilities where the insured undergo treatment at one of the partner hospitals within the insurer network, with the medical bill being settled directly by the insurance provider. This reduces the stress of bill payment and claim settlements during a medical emergency.

Tax Benefits

Under Section 123 of the Income Tax Act, 2025, the insured can avail tax deductions for premiums paid for a health insurance plan for themselves, their parents, spouse, and dependent children. This helps increase your overall savings while providing financial protection against medical expenses.

Tax Benefits of Health Insurance

• You can avail the following tax deductions under Section 123 of the Income Tax Act 2025.

• Deduction on Health insurance for self, spouse and children (below 60 years of age) - ₹25,000

• Deduction on Health insurance for self, spouse and children (60 years of age or above) - ₹50,000

• Deduction for Health insurance for parents (below 60 years of age) - ₹25,000

• Deduction for Health insurance for parents (60 years of age or above) - ₹50,000

• Hindu Undivided Family (HUF) Members (below 60 years of age) - ₹25,000

• Hindu Undivided Family (HUF) Members (60 years of age or above) - ₹50,000

• Deduction on preventive health check-ups - ₹5,000.

Health Insurance Terms You Must Know

Before we dive deeper into health insurance, let’s get familiar with common health insurance terms you must know.

Types of Health Insurance Plans

You can purchase different types of health insurance plans based on you and your family’s health requirements. The following are the types of health insurance plans you can buy.

Individual Health Insurance

An individual health insurance plan covers medical expenses such as surgeries, hospitalisation, and other covered treatments and procedures. It typically comes with a more affordable premium than a family floater plan.

Family Floater Health Insurance

A Family Floater Health Insurance plan provides coverage for you, your spouse, parents, and dependent children under a single premium and shared sum insured. Buying a family floater is more affordable than purchasing separate policies for each member.

Group Health Insurance

A Group Health Insurance plan is provided by employers to their employees. It provides standard coverage to all employees depending on the corporation’s policy, unlike individual and family floater health insurance plans, which provide more customised coverage.

Senior Citizen Health Insurance

This health insurance plan is designed specifically for individuals aged 60 years and above. It provides essential hospitalisation coverage tailored to the unique health risks and age-related medical needs, which is often excluded under the standard insurance plan.

Critical Illness Health Insurance

A Critical Illness Health Insurance plan pays out a predetermined lump sum amount on the diagnosis of a critical, life-threatening disease or conditions such as cancer, kidney failure, organ failure, or others. The insured usually does not have to be admitted to a hospital to raise a claim.

Maternity Health Insurance

Maternity Health Insurance specifically covers pregnancy, delivery, and pre- and post-natal care expenses. These plans may also cover a newborn’s medical expenses and generally come with a waiting period. Therefore, women planning to start a family must purchase a maternity plan before conceiving to ensure the waiting period is completed before they become pregnant.

Personal Accident Health Insurance

Personal Accident Health Insurance provides a fixed-benefit or lump sum payout in the event of accidental death, permanent and temporary total or partial disability that could impact the insured’s ability to work.

Critical Factors to Consider Before Buying Health Insurance

The following are essential factors you must consider before buying health insurance.

Sum Insured

Choose a health insurance plan with an adequate coverage amount that keeps pace with rising medical inflation to ensure you’re well-covered with less strain on your pocket.

Restoration Benefits

Opt for health insurance plans with restoration benefits, which automatically refill your sum insured if it gets exhausted during a policy year.

Waiting Period

All health insurance policies come with an initial waiting period of 30 days, with additional waiting periods for certain pre-existing diseases and specified medical conditions. Look for a health insurance plan with the lowest waiting period to ensure your protection starts as early as possible.

Hospital Network

Assess the insurer’s hospital network and check whether the health insurance policy offers a cashless hospitalisation facility. Go for an insurer with a large network of hospitals and cashless facilities.

Room Rent Limit

Many health insurance policies impose a daily limit on room rent. If you choose a room that exceeds this cap, you will be liable for the balance and may even face proportionate deductions on other hospital charges. To avoid these hidden costs, opt for a policy without room rent capping.

Co-Payment Clauses

The co-payment clause requires the insured to bear a fixed percentage of the total medical bill. Avoid health insurance policies with co-payment clauses or select one with the lowest percentage

No Claim Bonus (NCB)

No Claim Bonus is a reward provided to policyholders who raise no claims in a policy year by increasing the sum insured or reducing the premium on health insurance plans.

Step-by-Step Process of Buying a Health Insurance Policy

Here’s a step-by-step guide to buying a health insurance policy.

Step 1: Assess your health requirements and calculate how much coverage you need based on family size and medical history. Step 2: Disclose all material facts and your and your family’s pre-existing conditions. If the insurer discovers that you failed to disclose material facts or pre-existing medical issues, it could lead to claim rejection later Step 3: Use online aggregators to compare 3-4 top health insurance plans offered by various insurance providers. Step 4: Check the network hospital list of the short-listed insurance providers. Ensure your local preferred hospitals are on the list for hassle-free hospitalisation to avail the cashless hospitalisation facility. Step 5: Read the fine print and check for medical treatments excluded in the health insurance policy before signing and making the first premium payment.

Common Mistakes to Avoid When Buying Health Insurance

The following are some common mistakes that most people make when buying health insurance.

Opting for a Health Insurance Plan With Lower Premium

Many people believe that choosing a health insurance plan with the lowest premium is the best way to save money. However, low-premium plans often come with limited coverage or steep co-pays. In the event of an accident or a medical emergency requiring expensive treatments, a cheap policy may fail to provide the financial protection you truly need.

Hiding Medical History

Insurance works on the principle of ‘Utmost Good Faith’, which requires you to disclose all material facts regarding your medical history and habits to the insurance provider. Failing to disclose or hiding medical history or lifestyle would lead to claim rejections and make your health insurance policy completely null and void.

Relying on Corporate Health Insurance

Some people think having corporate health insurance is sufficient to cover their medical expenses. However, group policies often have standard coverage that may not align with your unique health requirements and will end when you leave the company.

Not Buying Health Insurance at an Early Age

Young people often put health insurance at the bottom of their priority list, viewing it as a concern for old age. However, young policyholders enjoy lower premiums and shorter waiting periods, whereas older individuals face higher premiums and longer waiting periods.

FAQs

What is the difference between a Premium and a Deductible?

A premium is the regular fee you pay, monthly or yearly, just to keep your insurance active, whether you get sick or not.

A deductible is the amount you must pay out of your own pocket for medical care before your insurance starts paying anything.

What are "Network Hospitals" and why do they matter?

Network hospitals are hospitals partnered with your insurance company. If you go In-Network, the insurance company coordinates with the hospital and gets the bill settled directly. If you go out-of-network, you will have to pay for the medical costs and later raise a claim with the insurance provider.

Will my insurance cover illnesses I already have?

Yes, but usually not right away. Pre-existing conditions, such as diabetes or asthma, usually have a waiting period of 1 to 4 years before the insurance company will cover them. Always disclose these upfront so your future claims don't get rejected.

What are "Sub-limits" and "Co-payments"?

Sub-limits are a cap on specific expenses, while co-payments are a fixed percentage of the total bill that you must pay yourself every time you incur a medical expense.

Do I need personal insurance if my company provides it?

Yes. Company insurance only covers you while you work there and offers standard coverage. If you quit, get laid off, or retire, you lose your coverage instantly. A personal policy keeps you protected no matter your employment status.