Let me start with an example-

You purchase a health insurance cover of 5 Lakhs today. You get hospitalized after 2 months, due to an accident and the expenses incurred in hospital are around 3 Lakhs. You will get back this 3 Lakhs from the health insurance cover which you purchased 2 months back.

Now if the hospitalization expenses are 6 Lakhs, you will get 5 Lakhs from the health insurance cover and remaining 1 Lakh need to be paid from your own pocket.

This is a very simple example of how health insurance cover works. There are lots of ifs and buts in a health insurance cover and that is the reason it is very difficult to choose a health insurance cover. 

What is health insurance?

Health insurance is another risk management tool . Health insurance reimburse your hospitalization expenses in case of accident, injury, illness etc.

Let us understand it taking the perspective of vehicle insurance (car/bike). When you purchase a new vehicle, you purchase an insurance policy for your car or bike or if you have an old vehicle, you renew the insurance policy every year.

1. If there is an accident and the vehicle is damaged, the repair cost of the vehicle is reimbursed by the insurance company.
2. What if you do not have any insurance policy for the vehicle and vehicle gets damaged, you will have to pay the repair cost from your own pocket.

In the first case, you are managing the risk by transferring the risk to insurance company i.e. the insurance company will pay for the repair cost of the vehicle.

In Second case (where you do not have any insurance policy), you are retaining the risk by paying repair cost from your own pocket.

What happens if there is no hospitalization in the year- you do not get anything back from the premium amount you paid.

Health Insurance works almost same as the vehicle insurance.You purchase a health insurance and pay the premium for sum insured. If you get hospitalized in that particular yeas, you will get the reimbursement upto sum insured i.e. you will get the amount back (which you spent during hospitalization).

Why do you require health insurance cover?

Health insurance cover unlike vehicle insurance is not a compulsion, it is a choice. You certainly need a health insurance cover that too

1. At young age when you are healthy
2. High cover for future security

There are 3 main reasons for purchasing health insurance cover, other than tax benefits which you get under Section 80D

Stressful Lifestyle

If you compare your lifestyle with your parents, there is a tectonic shift. Though there has been a lot of medical advancement since our parent’s time, there is a drastic increase in life style diseases like blood pressure, diabetes and other stress related disease. It is becoming very difficult to maintain a healthy lifestyle and that is reason to purchase a health insurance policy at young age.

You may ask the question that I can purchase it at later stage. Yes, you can definitely purchase it but there is no guarantee that health insurance company will be ready to give it you if you are not healthy in future.

High Inflation

The hospitalization costs are increasing drastically. While the normal inflation level is in single digit, medical inflation is double digits. Private hospital`s single room costs per day are higher than a single room in a five-star hotel. On a lighter note, you can get a discount in a five-star hospital but you will never get a discount in a hospital.

Doctor fee, surgery costs, medicine costs are increasing and the best way to protect yourself from high medical inflation is health insurance cover.

Continuous Coverage

Depending on your savings for any hospitalization expenses can make a big dent in your future plans, be it your children`s education, their marriage or your own retirement planning.

You can depend on your savings for once, twice or thrice. What after that? How will you manage? It would be very difficult to manage hospitalization expenses throughout your life from your own savings. That’s another reason to purchase health insurance cover. Once purchased, you can renew it through out your life time by paying a small amount of premium.

Tax Benefits

Of course, this is reason most of the people purchase health insurance. You get tax benefits under Section 80D of income tax for health insurance policy (if you are under old tax regime).

This is what and why of health insurance. But choosing a health insurance policy is all together a different ball game. You need to understand atleast the basic terms before purchasing a health insurance policy for you, your family or your parents.

Once you understand the basic terms, it becomes easy to shortlist few health insurance policies. And once you understand the intricacies, you can decide which one to purchase.