What Is Health Insurance?

Introduction: Why Health Insurance Matters More Than Ever

Medical costs in India have risen steadily over the last decade. A single hospitalisation can easily run into lakhs—sometimes even for routine procedures. Yet, many people still delay buying health insurance, often assuming they won’t need it.

So, what is health insurance, really?
Is it just a tax-saving product? A safety net for emergencies? Or something employers offer because they have to?

In reality, health insurance plays a far bigger role—protecting savings, ensuring access to quality healthcare, and increasingly, shaping how companies care for their employees.

This guide explains health insurance in simple terms, with Indian examples, and covers both individual health insurance and corporate or group health insurance.

What Is Health Insurance?

Health insurance is a financial arrangement where an insurance company agrees to cover your medical expenses in exchange for a premium.

In simple words:
You pay a small amount regularly (premium), and the insurer pays for large medical bills when you fall ill or need treatment.

These expenses may include:

• Hospitalisation costs
  
  
• Doctor’s fees
  
  
• Surgery and ICU charges
  
  
• Medicines and diagnostics
  
  
• Day-care procedures
  
  
• In some cases, OPD and mental health care
  
  

Health insurance protects you from sudden financial shocks caused by medical emergencies.

How Does Health Insurance Work in India?

Here’s a simple example:

• You buy a health insurance policy with a sum insured of ₹5 lakh
  
  
• You pay an annual premium of ₹12,000
  
  
• You are hospitalised and the bill comes to ₹3 lakh
  
  
• The insurer pays the hospital directly (cashless) or reimburses you
  
  
• You pay only the non-covered expenses, if any
  
  

Without insurance, that ₹3 lakh would have come entirely from your savings.

Key Terms You Should Know

To fully understand what health insurance is, it helps to know a few common terms:

• Premium: Amount you pay for the policy (monthly or annually)
  
  
• Sum Insured: Maximum amount the insurer will pay in a year
  
  
• Network Hospital: Hospital tied up with the insurer for cashless treatment
  
  
• Cashless Claim: Insurer settles the bill directly with the hospital
  
  
• Reimbursement Claim: You pay first and claim later
  
  
• Waiting Period: Time before certain conditions are covered
  
  
• Pre-existing Disease: Illness you had before buying the policy
  
  

Types of Health Insurance in India

1. Individual Health Insurance

This is a policy you buy for yourself or your family.

Who it’s for:

• Self-employed professionals
  
  
• Freelancers
  
  
• Individuals without employer cover
  
  
• Families looking for independent coverage
  
  

What it covers:

• Hospitalisation
  
  
• Pre- and post-hospitalisation expenses
  
  
• Day-care procedures
  
  
• Sometimes OPD or maternity (with waiting periods)
  
  

Limitations:

• Higher premiums with age
  
  
• Medical tests may be required
  
  
• Waiting periods for pre-existing conditions
  
  

2. Family Floater Health Insurance

A single sum insured shared by all family members.

Example:
A ₹10 lakh policy covering you, your spouse, and two children.

Pros:

• Cost-effective
  
  
• Easy to manage one policy
  
  

Cons:

• Entire sum insured can be exhausted by one member
  
  

3. Senior Citizen Health Insurance

Designed for people aged 60+.

Features:

• Higher premiums
  
  
• Specific coverage for age-related illnesses
  
  
• Often includes co-pay clauses
  
  

4. Group or Corporate Health Insurance

This is health insurance provided by an employer to employees.

This is where health insurance intersects with the workplace.

What Is Group Health Insurance?

Group health insurance is a policy purchased by an organisation to cover its employees under a single plan.

Instead of individuals buying policies separately, the employer negotiates coverage for the entire workforce.

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How Corporate Health Insurance Works

• The company buys a master policy
  
  
• All employees are covered from day one
  
  
• Premium is paid fully or partially by the employer
  
  
• Coverage often extends to dependents (spouse, children, sometimes parents)
  
  

What Does Group Health Insurance Typically Cover?

Most corporate health insurance plans in India include:

• Hospitalisation (cashless across large hospital networks)
  
  
• Pre-existing diseases from day one
  
  
• Maternity benefits
  
  
• Mental health coverage
  
  
• Day-care procedures
  
  
• Emergency ambulance services
  
  

Many modern plans also include:

• OPD consultations
  
  
• Telemedicine
  
  
• Preventive health checkups
  
  
• Wellness programs
  
  

Why Group Health Insurance Is Different (and Better)

1. No Medical Tests

Employees are covered without health checks.

2. Pre-existing Conditions Covered

Unlike individual plans, there’s usually no waiting period.

3. Lower Cost

Group plans are cheaper due to risk pooling.

4. Immediate Coverage

Employees are insured from the date of joining.

This makes group health insurance one of the most valued employee benefits in India today.

Health Insurance as an Employee Benefit

For employees, health insurance is no longer a “nice-to-have.” It’s expected.

Why?

• Medical inflation in India is high
  
  
• Nuclear families rely on employer benefits
  
  
• Mental health care is expensive without coverage
  
  
• OPD and diagnostics add up quickly
  
  

For employers, offering good health insurance helps with:

• Talent attraction and retention
  
  
• Reduced absenteeism
  
  
• Higher employee trust
  
  
• Stronger employer brand
  
  

Example: Individual vs Group Health Insurance

What Health Insurance Does Not Cover

Understanding exclusions is just as important:

• Cosmetic treatments
  
  
• Non-prescribed supplements
  
  
• Self-inflicted injuries
  
  
• Experimental treatments
  
  
• Certain OPD expenses (unless specified)
  
  

Always check the policy wording.

How Much Health Insurance Do You Need?

A general rule in India:

• At least ₹5–10 lakh per individual
  
  
• Higher coverage in metro cities
  
  
• Additional top-up plans if needed
  
  

For employees, employers often offer:

• ₹3–5 lakh base cover
  
  
• Optional top-ups or parental coverage
  
  

Tax Benefits of Health Insurance

Under Section 80D of the Income Tax Act, premiums paid for health insurance qualify for tax deductions.

• Up to ₹25,000 for self/family
  
  
• Additional ₹50,000 for parents (senior citizens)
  
  

Employer-paid group health insurance premiums are tax-free benefits for employees.

The Shift Toward Preventive and Holistic Care

Health insurance in India is evolving beyond hospitalisation.

Modern plans increasingly include:

• Mental health support
  
  
• Annual health checkups
  
  
• Lifestyle and wellness programs
  
  
• Chronic care management
  
  

This shift reflects a broader understanding: healthcare isn’t just about treatment—it’s about prevention.

How to Choose the Right Health Insurance Plan

Ask these questions:

1. What is the sum insured?
   
   
2. Are pre-existing conditions covered?
   
   
3. Is there cashless access near my location?
   
   
4. Are mental health and OPD included?
   
   
5. What are the waiting periods and exclusions?
   
   

For employers:

• Does the plan support diverse employee needs?
  
  
• Can coverage scale as the company grows?
  
  
• Is the claims experience simple and transparent?

Final Thoughts

Understanding what health insurance is helps individuals make smarter financial decisions and helps employers build healthier workplaces.

Whether you’re buying a personal plan or offering corporate health insurance, the goal is the same: care without chaos, support without financial strain.

At Plum, we believe health insurance should be easy to understand, simple to use, and built around real human needs—not paperwork.