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Hospital Indemnity Insurance: What Is It and How Does It Work?

Writing on clipboard with patient in background in hospital

November 12, 2018 / by Kamran Malik, ASA, MAAA

Hospital indemnity insurance is one of many supplemental insurance products that can be sold to individuals or on a group platform. We work with clients to provide product design, pricing, and filing for these policies, as well as experience reporting, financial reporting, and reserve certification.

If you’re unfamiliar with hospital indemnity insurance, here are some of the most frequently asked questions we receive from someone entering the market for the first time. We have worked with many top insurers to develop these products and can provide more information or answer any additional questions you have.

What is a hospital indemnity policy?

A hospital indemnity policy is a supplemental insurance policy that pays benefits when you are hospitalized for sickness or injury. It provides an amount of benefit that is determined when the policy is purchased. Coverage may include benefits for each day a policyholder is in the hospital and/or certain procedures and conditions.

What are the typical benefits?

Hospital indemnity policies include, but are not limited to, the following benefits:

  • Daily benefit for hospital stays (ICU and Non-ICU)
  • Lump sum benefit for hospital stays (ICU and Non-ICU)
  • Transportation and lodging
  • Ambulance (ground, water and air)
  • Emergency room visits
  • Diagnostic exams
  • Surgery and anesthesia
  • Doctor’s visit related to covered illness or injury
  • Skilled nursing facility
  • Home health care benefit
  • Rehabilitative therapy
  • Health and wellness

How are these policies sold?

Policies are sold in the following ways:

  • To individuals by agents/brokers
  • In the worksite market, sold to individuals on voluntary basis or employer paid basis

What type of underwriting is performed?

  • Individual policies are underwritten on a simplified basis using health questions. Phone interviews and drug screens may also be performed.
  • In group settings, companies may offer a guaranteed issue option with limited benefits.  

Are dependents covered?

Depending on the product design, usually dependents are covered. Dependents include spouses, domestic partners, children, step-children and other relationships as recognized by the government. Additional premiums will apply.

What are the typical limitations and exclusions?

The typical limitations and exclusions for this type of product are listed below:

  • Non-medically necessary procedures
  • Experimental/investigative procedures
  • Benefits that a policyholder receives for free (unless at a government hospital)
  • Treatment received from a family member
  • Coverage received outside the United States
  • Illness or injury as a result of committing an assault
  • Cosmetic or elective surgery
  • Injuries that are covered under Workers’ Compensation policies
  • Accidents that result from using a drug or controlled substance or while intoxicated
  • Usually normal pregnancy is excluded (from Individual Products)

Is pregnancy covered?

  • Normal pregnancy (without complications ) is usually covered in the worksite market, and seldom covered in the individual market due to high risk of anti-selection.
  • In the case of pregnancy-related complications (ectopic pregnancies, non-elective Cesarean sections, etc.), policies will pay benefits due to any hospitalization.

Are pre-existing conditions covered?

Hospital indemnity insurance typically has a pre-existing limitation. During the first six (or 12) months after the effective date of the coverage, benefits are not payable for any sickness that is the result of a pre-existing condition. This limitation is to avoid policy sales immediately before known claims.

Please contact us if you have any additional questions related to hospital indemnity insurance and its benefits or exclusions. We have extensive experience designing these types of plans for small and large clients in the group and individual markets.

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Topics: Insurance

Kamran Malik, ASA, MAAA

Written by Kamran Malik, ASA, MAAA

Kamran began his actuarial career in 1996 and currently serves as a Consulting Actuary, focusing on new product pricing and rate increases.