De-jargoned: Hospital cash policy

This works as a source of income in case a serious hospitalization incident impairs ability to earn.

There are some health insurance policies that don’t pick up the tab of your hospitalization. Instead, they offer a fixed payout when you get hospitalized. In insurance parlance these policies are known as defined benefit policies. Such plans work as a source of income in case a serious hospitalization incident impairs your ability to earn. They also work very well as an add-on to a regular health insurance policy, one that pays your bills during hospitalization.

In the universe of defined benefit policies, a critical illness policy is one of the most popular plans: it pays a fixed lump sum if you are diagnosed with a defined critical illness. A hospital cash policy is yet another popular choice that is structured to offer daily cash to meet other medical and non-medical expenditure during your stay in the hospital. But in their current form, these policies leave much to be desired.

Here is a run-down on what a hospital cash policy is and the caveats that you need to keep in mind.

Common structure

A hospital cash policy gives you a daily allowance in case an accident or an illness leaves you hospitalized. At the time of buying this policy, the policy features would communicate three things: daily cash limit, number of days covered and eligibility. Most hospital cash policies will need you to be hospitalized for at least 24 hours to be eligible for the cash payout. Some policies may even insist on 48 hours.

Day care procedures are ordinarily not covered in a hospital cash policy, so you need to ask about this specifically at the time of buying the policy. Typically, a hospital cash policy will pay you daily cash in the range of 500-3,000. Most policies increase this limit in case of hospitalization in intensive care unit (ICU), but would then have lesser number of days eligible for hospital cash in the ICU. For instance, a hospital cash policy that offers daily allowance for 30 days of hospitalization in a year, may give about 15 days in the ICU.

A hospital cash policy can be bought as a stand-alone policy or as a rider, i.e., as an add-on to a base policy. These days hospital cash policies also come bundled with regular health insurance policies. Check while buying.

Watch out for

Do keep in mind that like most health insurance plans, hospital cash policies also also comes with initial waiting periods and waiting periods on pre-existing ailments. Therefore, you will need to go through the exclusions carefully even under this plan.

Even as hospital cash is a good policy to supplement your income, the claim process is a bit of a dampener. You don’t actually get a daily allowance when you are hospitalized, but post-hospitalization, when you produce medical records to prove your hospitalization. In that sense, this policy does not help you with daily expenses during your stay in the hospital; it only reimburses a fixed sum post-hospitalization.