8 key health insurance policy terms you should know before buying

Health insurance is a must-have these days, as any emergency can cost heavily. Therefore, you need to prepare yourself well in advance so that your savings do not suffer a sharp erosion. Additionally, before buying health insurance, it is important to understand key technical terms specific to the industry. This will help you make an informed choice.

Here are some key terms important in health insurance:

Sum insured: While in life insurance, sum assured term is used for the coverage amount, in health insurance the term used is sum insured. It is the maximum cover the insurer pays for eligible medical expenses in a year.

Deductible: It is the pre-set or pre-fixed amount agreed to be paid by the insured out of pocket for the eligible medical expenses even before health coverage begins. It is essentially the share in your medical bill that has to be borne by you. Say, if the coverage involves ₹10,000 deductible and your total hospital bill is ₹1,00,000 then ₹10,000 has to be paid by you, and the balance ₹90,000 can be claimed by the insurer up to the sum insured value.

Co-pay: This is an agreement to share the hospital costs in some proportion. This is available in some of the cases like for senior citizens, pre-existing diseases etc. The move enables some out-of-pocket payment by the insured, while reducing the premium for him or her.

Waiting period: Waiting period also applies to health insurance. This is the period before a certain coverage begins. This can be in respect of general conditions, together with pre-existing diseases etc. which were diagnosed before the insurance was actually bought. It is important for the potential buyer to reveal his or her condition details correctly to avoid any instances of claim rejection.

Cashless hospitalisation: As the name specifies, the claim is approved by the insurer with no requirement of upfront payment by the insured. The facility allowed at network hospitals hence does away with the need to pay high upfront cost.

Incurred claim ratio: The ratio indicates the health of the insurer as to how good is its track record in settling claims. The metric suggests how much money, out of the total premium collected, the insurer has deployed towards settling claims in a given year. To understand it, say the ICR of an insurer is 50% at any given time then out of the total ₹100 collected in premium during the said period, the insurer has used ₹50 in settling the claims.

This is different from the claim settlement ratio which tells the number of claims the insurer has entertained as against the claims made in a given year.

Exclusions: There are certain conditions in the medical field against which insurers do not extend coverage. For example: any cosmetic surgery, self-inflicted injuries, dental treatment etc.

No-claim bonus: For every claim-free year, you may be rewarded for staying healthy i.e. in this your sum insured value can go higher in the next year and beyond. The no-claim bonus in health insurance works similar to a car insurance and supposing your health insurance value is ₹10 lakh, then in case of a no-claim year or when there is no claim made in a year, the insurer may either increase the coverage by some percentage any way ranging from 10-50%, or may even allow some discount on your next renewal premium.

So, basic understanding of all these crucial terms in respect of the health plan will help you make a good and reasonable choice.