Is hospital indemnity insurance worth it?

What is hospital indemnity insurance?

It's a type of supplemental health insurance that pays a fixed benefit directly to you — not the hospital — when you or a covered family member is admitted for a covered stay. You can use your benefit money for out-of-pocket medical expenses and other costs that come up — including regular living expenses. But importantly, hospital indemnity insurance is not a substitute for health insurance.

How hospital indemnity plans work

If you or a covered family member are unexpectedly hospitalized, you go online to your insurance company to file a claim and provide needed documents, like a hospital bill. Soon after the claim is filed, the benefit payment will be sent to you or deposited into your bank account providing financial assistance when you need it most. (See an example and find out more about how it works.) How much will you get? That typically depends on the number of days hospitalized, and the other services and procedures covered by the policy. Importantly, there may be no deductibles or network restrictions with these plans: If you have a covered event (i.e., hospitalization), you will receive a benefit payment.

That payment can be used to help pay for things like health plan deductibles, copays, and other out-of-pocket medical expenses — but it’s up to you. If you decide, you can use it to help pay for related non-medical costs like childcare, transportation or anything else you choose.

What hospital indemnity insurance covers

Policies vary, but in general hospital indemnity plans pay benefits for days of hospitalization. Many plans may go beyond that with additional payments for things like inpatient surgeries, Intensive Care Unit (ICU) stays, and critical care health screenings, rehabilitation confinement, and Intensive Care Unit (ICU) confinement may even cover imaging (like a CT scan), outpatient surgery, emergency room visits, and ambulance services.

Childbirth and pregnancy

When you are thinking about expanding your family, getting a hospital indemnity plan may be the furthest thing from your mind. However, it’s something to consider: Some hospital indemnity plans will pay out the benefit for a hospital stay for the birth of a child, which can really come in handy as the diaper bills add up!

Furthermore, depending on the specific plan, hospital indemnity insurance can also pay benefits for a number of childbirth-related items, such as:²

• The mother’s hospital/ICU admission.

• Typically, up to 15 days of hospital or intensive care unit confinement (for example, to care for a baby in a neonatal ICU).

• Complications of pregnancy (to the same extent as other sicknesses covered by the plan).

What’s not covered — and how it differs from other types of supplemental health insurance

It's important to note again that hospital indemnity insurance is not a substitute for traditional medical insurance: the benefits are paid directly to you, instead of the provider, and the amount paid isn't typically enough to cover most or all of you doctor and hospital bills.

Hospital indemnity plans also work differently from other kinds of supplemental health insurance. Accident insurance, critical illness insurance, and cancer insurance pay benefits for a covered accident or diagnosis of a covered condition, whether you need hospitalization or not; hospital indemnity insurance helps pay for covered hospitalizations, regardless of diagnosis.

Is hospital indemnity insurance worth it?

When a medical issue results in hospitalization, all sorts of unexpected expenses can go along with it. That can get in the way of focusing on what's most important: getting better. Hospital indemnity insurance tends to be very cost-effective — especially if you get it through work — and the benefits can help boost your finances at a stressful time. It can be particularly suitable for people who:

• Are pregnant, or planning to be

• Have a chronic or recurring illness

• Are covered by a high-deductible health plan

• Desire extra financial protection in case of an accident or medical emergency

Can be combined with other forms of supplemental health insurance

If your employer offers different types of supplemental insurance, how do you choose? The answer depends largely on your concerns about potential health issues or overall exposure to out-of-pocket medical costs. For example, if you have a history of cancer in your family, you might want to opt for cancer insurance. If heart disease or stroke is more of a concern, you may choose critical illness insurance. Or, if you participate in sports that could cause harm or injury — such as rock climbing, skiing, or motorcycling — accident insurance could be especially appealing. But it doesn’t have to be an either/or choice: with generally affordable rates, many people opt for multiple kinds of supplemental health coverage for more complete financial protection.

Things to consider before signing up

Even though the cost tends to be quite reasonable — you still have to think about your budget, and how important it is to have this extra layer of financial protection. You should also take a look at the schedule of benefits to see exactly what kinds of payments to expect: the amount per day of hospitalization, how many days are covered per year, and what's paid for other covered tests, procedures or events (such as an emergency room visit or ambulance ride).

How to get a hospital indemnity plan

Many employers offer hospital indemnity insurance as a voluntary benefit (i.e., an optional benefit paid for by the employee) but individual plans are also available from some insurers. However, if it's available at work, that's typically a better option, because you benefit from group rates that are typically lower than individual rates. You also benefit from simplified enrollment and easy payroll deductions. Importantly, hospital indemnity insurance through work is typically guaranteed, meaning the employee can't be turned down based on their medical history, and no medical underwriting is required. And it's important to note that benefits are paid regardless of any other insurance coverage the employee may have, including their health insurance coverage.