What Is Health Insurance in Simple Words?
Written by Upstox Desk
4 min read | Updated on May 22, 2025, 11:30 IST
What Is Health Insurance? (Explained Simply)
Why Do You Need Health Insurance?
Type of Health Insurance Plans in India
Key Terms You Must Know
Summing up
FAQs
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Introduction
Tushti had a high fever last year and was admitted to a nearby hospital. She was diagnosed with dengue and needed platelet replacement. As a 26-year-old private bank employee, she had little savings and had to shell out around ₹80000/- for her treatment and hospitalisation for 8-10 days (as she had no health insurance). As per Tushti, it was money not well spent because she did not even get a fancy room!
Many people like Tushti do not comprehend the importance of health insurance and consider it best suited for individuals with high-risk jobs and lifestyles. People often argue that they work from home, have a highly secure workplace, or use public transport, and therefore, their risk exposure is zero. The truth is that health insurance is a critical aspect of personal financial planning, and your entire savings can be easily wiped away if you have no (or inadequate) coverage.
Let us understand the concept of health insurance without any technical or fancy jargon and its importance for everyone, especially for those who feel that they do not really need it.
What Is Health Insurance? (Explained Simply)
Consider health insurance as a financial safety net that helps you meet your and your family’s healthcare expenses during hospitalisation and critical illness. You enter into a contract with a health insurance provider and pay an annual amount, known as a premium, which is typically paid in installments. In case you or people covered by the health insurance policy fall ill during the tenure, your hospital bills will be taken care of by your insurance company. You can also go for a cashless treatment from authorised hospitals and will not need to pay anything for the treatment, up to the coverage amount.
For example, if your policy has a sum insured of ₹5 lakhs, and you undergo a surgery that costs ₹2.5 lakhs, the insurer will cover it; you don’t have to pay out of pocket. It’s all about protecting your savings and getting access to quality healthcare without financial stress.
Why Do You Need Health Insurance?
There are different reasons why health insurance is critical, and you must not ignore it. Here are some of the most important points:
Rising Medical Costs
Even a short hospital stay can cost thousands; insurance cushions the blow.
Covers Emergencies
Sudden illnesses or accidents can happen anytime — insurance keeps you prepared.
Protects Your Savings
Prevents you from dipping into savings or taking loans during medical crises.
Covers the Whole Family
Family floater plans protect your loved ones under one policy.
Access to Better Healthcare
Enables treatment at reputed hospitals without worrying about affordability.
Tax Benefits
Premiums paid qualify for tax deductions under Section 80D of the Income Tax Act.
Type of Health Insurance Plans in India
Here is an infographic showing the types of health insurance plans in India (not an exclusive list, please contact your insurance agent/platform for tailored plans):
Key Terms You Must Know
Here are a few terms that you will encounter a lot and you must know before you buy a health insurance policy:
Premium
The amount you pay (monthly/yearly) to keep your policy active.
Sum Insured
The maximum amount your insurer will pay for medical expenses in a year.
Cashless Claim
You don’t pay the hospital; the insurer settles the bill directly (applicable when you receive treatment at your insurance company’s affiliated network hospitals).
Reimbursement Claim
You pay the hospital first, then submit bills to receive reimbursement.
Pre-Hospitalisation
Medical expenses, such as tests or consultations, are covered prior to admission.
Post-hospitalisation
Expenses such as follow-up visits (e.g., vaccinations for infants) and medicines are covered after discharge.
Network Hospitals
Hospitals tied up with your insurer, where you can get cashless treatment.
Waiting Period
The time during which certain illnesses or pre-existing conditions are not covered.
No Claim Bonus (NCB)
A reward (like increased coverage or discount) for not making any claims.
Summing up
Health insurance is a fairly simple financial planning and insurance tool. It is a simple way to protect yourself and your family from any unplanned medical expenses. By paying a small premium regularly, you gain peace of mind knowing your healthcare costs won’t drain your savings. We’ve covered the basics, from what health insurance means in simple terms to why it’s essential, key jargon to understand, and the different types of plans available in India.
If you are clear with the fundamentals, the next step would be to evaluate adequate coverage for you. You can visit Upstox and provide your details, and the team of insurance experts will provide you the best guidance for all your health insurance needs.
FAQs
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What is the main purpose of health insurance?
To provide financial protection against unexpected medical expenses by covering hospital and treatment costs.
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Who should buy health insurance?
Everyone: whether you’re single, have a family, or are nearing retirement, there’s a suitable plan for every stage of life.
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Can I claim tax benefits on health insurance?
Yes, under Section 80D of the Income Tax Act, you can claim deductions on the premiums paid.
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Is cashless treatment available with all health insurance plans?
Only at network hospitals. Always check if your preferred hospital is on the insurer’s list.
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What happens if I don’t make any claims in a year?
You may get a No Claim Bonus (NCB), which either increases your sum insured or reduces your premium.
About Author
Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
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