How Does Health Insurance Work in India?

Published on March 10, 2026 | 2 min read

If you’ve visited your local physician recently, you may have noticed a significant hike in their consultation fees. A simple consultation that earlier cost ₹1500 has now jumped to ₹2000. That’s medical inflation. In India, medical inflation is around 20% and significantly affects the affordability and accessibility of medical treatments.

Health insurance allows you to access the right medical treatment you need without having to worry about the expenses.

Key Takeaways

With rising healthcare costs, health insurance is crucial to protect you against unexpected and high medical costs.
Health insurance offers financial security and protects your savings from high-cost medical emergencies and rising medical inflation. In exchange for this security, you must pay premiums.
Most health insurance providers offer cashless hospitalization facilities, cooperating directly with the hospital to settle your claim while you focus on recovery.
Failing to pay your premiums by the due date or within the subsequent 15 - 30-day grace period will cause your health insurance policy to lapse.

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What Is Health Insurance?

Health insurance is a legally binding contract between the insurance provider and the customer, where the insurance provider promises to cover the customer's medical expenses in exchange for a regular premium. Health insurance acts as a shield against unpredictable and expensive healthcare costs, allowing you to get the treatment you need without any worry.

There are various types of health insurance:

Individual Health Insurance
Family Floater Health Insurance
Senior Citizen Plans
Critical Illness Policies
Group Health Insurance
Maternity Health Insurance
Top-up Health Insurance

Key Features of Health Insurance & How Does It Work?

Health insurance offers various beneficial features that ensure you get comprehensive coverage and a hassle-free claim procedure so you can focus on your health and not on the bill.

Cashless Hospitalisation

Most health insurance providers offer cashless hospitalization facilities. For all covered medical treatments you undergo, the insurer contacts the hospital and directly settles the expenses, eliminating the hassle of reimbursement.

No Claim Bonus

If a policyholder doesn’t raise any claims during a policy year, the insurer may offer NCB, allowing a discount on premiums or increasing their coverage at no additional cost.

Restoration Benefit

A Restoration benefit reinstates the coverage amount, i.e., the sum insured, if it is exhausted during the policy year, offering great coverage.

Covers AYUSH Treatments

Most health insurance providers cover traditional treatments such as Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy.

Tax Benefit

Under the Income Tax Act 2025 (Section 126), you can avail a tax deduction of ₹25,000 (₹50,000 if the insured is 60 years & above) and an additional ₹50,000 for health insurance premiums paid for parents, saving up to ₹1 lakh in a financial year in the old tax regime.

What's Covered in a Standard Health Insurance Plan?

Health insurance is not a one-size-fits-all instrument and hence requires customised coverage to meet your unique health requirements. However, a standard health insurance typically covers the following medical expenses.

Pre- & Post Hospitalisation

A standard health insurance plan covers all diagnostic tests, consultation fees and medication and other expenses incurred 30-60 days before and up to 60-90 days after hospitalisation.

Daycare Procedures

Treatments that don’t require a 24-hour hospital stay such as dialysis, chemotherapy, cataract surgery and radiotherapy, etc are covered.

Ambulance Charges

A standard health insurance plan covers ambulance charges as well.

Domiciliary Hospitalization

Domiciliary hospitalization refers to receiving treatments at home if the patient is too ill to be shifted to a hospital. A standard health insurance covers such treatments as well.

AYUSH Treatment

Non-allopathic treatments such as Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy are generally covered.

Organ Donor Expenses

Medical costs incurred for the organ donor during transplantation are compensated by the insurer.

Preventive Health Check-up

To encourage policyholders to maintain their health, most health insurance policies cover annual health check-ups to facilitate early diagnosis of illness, preventing high costs resulting from complex treatments.

How Does a Health Insurance Claim Work?

For health treatments covered under your health insurance policy, there are two types of claims.

Cashless Claims Procedure

In this method, policyholders receive treatment at hospitals in the insurer’s network, listed in your policy document. The insurer will then coordinate with the hospital to settle your bills.

Here’s how to claim health insurance under the cashless claim procedure:

Pre-Authorization

Choose a hospital under your insurer’s network, inform your insurer before admission in case of a planned procedure, and fill out the pre-authorization form, including details about your policy and treatment.

Your insurer will review the pre-authorization form and medical records submitted by the hospital and settle the covered expenses.

Approval/Denial

If medical records and documents submitted by the hospital are not sufficient to determine the admissibility of the claim, the insurer may ask for additional documents.

If the claim is approved, the insurer will notify the hospital of approval given and issue authorization letters as per policy terms. If denied, you can receive the treatment but you need to switch to the reimbursement claim process, if applicable.

Post-Treatment Formalities

After treatment, the hospital submits the final bill along with the discharge summary to the insurer. Upon verification of the bill, the insurer will pay for the medical expenses

Reimbursement Claims Procedure

In this method, the policyholders pay the medical expenses out-of-pocket and later claim reimbursement. This method is commonly used when treatment is received in a non-network hospital or when the insurer denies the cashless claim.

Payment of Bills

Bear the hospital bills during the discharge and keep all receipts, medical reports and discharge summary, etc., handy.

Claim Submission

Fill out the claim form and attach all the required documents and submit it within the prescribed time.

Claim Processing

The insurer will verify the claim by reviewing the submitted documents. Regularly check the status of your health insurance claim online via the insurer’s website or app. Provide additional documents if required.

Settlement

If the insurer approves the claim, the amount will be reimbursed to your registered bank account. If rejected, you will receive a letter specifying the reason for the rejection. If you’re displeased with the reason, you can either appeal or resubmit your claim.

With rising medical inflation, health insurance has become a necessity to afford the medical treatments you need. You can buy health insurance online and file claims via the website or apps without dealing with tedious paperwork, and focus on recovery.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.