A three-day stay in the hospital can cost around $30,000.
No problem, you may be thinking, because you have health insurance.
Yes, your health insurance policy will probably cover most of the cost. But if, like many policies, your plan covers 80 percent of the cost of a hospitalization, then the remaining 20 percent is your responsibility.
That’s $6,000, which doesn’t include the deductible if you haven’t met it at the time you’re hospitalized.
This is a large expense for almost anybody, especially considering that nearly 40 percent of Americans can’t handle an unexpected expense of just $400 without going into debt, borrowing from friends or family, or skipping another bill payment.
One way to protect yourself against absorbing the potentially high cost of hospitalization is with hospital indemnity insurance.
Hospital indemnity insurance is a type of policy that helps cover the costs of a hospital admission that may not be covered by other insurance. It is a type of supplemental insurance. That means it’s designed to complement traditional health insurance, not replace it.
Plans typically provide benefits to you when you are admitted to a hospital or ICU for a covered sickness or injury. However, there are some policies that will also pay a benefit for outpatient surgery, emergency room visits, stays in a rehabilitation facility, and ambulance services.
Hospital indemnity policies typically pay a lump sum directly to you, not a hospital or medical facility. That means you can use the benefit for any purpose, whether to cover the cost of care or for a non-related purpose.
How does hospital indemnity insurance work?
Below are other considerations regarding hospital indemnity insurance:
- Like with other types of insurance, you can buy your own individual policy or, if available, purchase through your employer’s group plan.
- There is a wide range of costs for hospital indemnity insurance. It will vary based on how much is covered, what the benefit amount will be, whether you include dependents on the policy, and whether you buy an individual or group policy. It can be as affordable as $7 a month or as much as $463.
- The policy benefit is usually based on the number of days you are hospitalized. For example, a policy that pays $250 per day will provide you a lump sum of $750 if you spend three days in the hospital. There may be a limit to how many days the policy will reimburse you for; for example, a 30-day limit.
- Policies also sometimes provide an Initial Confinement Benefit. This is an amount you would receive just by being admitted before the per-day benefit is considered. For example, if in the above scenario you have an initial confinement benefit of $500, you would receive a $1,250 total benefit.
- Plans may have an optional benefit to include childbirth. Depending on the policy, a hospital indemnity policy may cover the mother's admission to the hospital for normal labor and delivery, as well as an ill infant's stay in a neonatal intensive care unit.
Hospital indemnity insurance vs. other types of coverage
Hospital indemnity insurance is similar to other types of supplemental insurance, but there are key differences in what is and isn’t covered.
One similar type of insurance is critical illness insurance (CII). Like with hospital indemnity insurance, CII pays a lump sum if you qualify for benefits. You can use the money for whatever you need. However, CII only covers certain health conditions, such as cancer, heart conditions, stroke, and organ damage, including transplants.
CII does not typically provide benefits for any expenses related to chronic conditions, such as diabetes. It will also not cover you in the event you are hospitalized because of a serious injury. And while some CII policies are now being updated to cover COVID-19 and other infectious diseases, not all will.
If you had both hospital indemnity and CII and suffered a condition covered by CII, you could use the benefits of the former to pay for a stay in the hospital and the latter for any travel expenses, follow-up visits, or other needs.
You may have also heard of accident insurance. This type of insurance pays out a lump sum if you incur specific kinds of injury as a result of an accident. Covered injuries may include dislocations, lacerations, concussions, burns, and other serious injuries. The benefit amount you receive depends on the diagnosis and severity of your injury, how your injury was treated, and the type of coverage you have.
An accident policy typically does not cover injuries resulting from illness. Therefore, if you admitted to the ICU for COVID-19, an accident policy would not help you.
Another type of supplemental policy is disability insurance. This type of policy replaces part of your lost income in the event you can’t work due to an injury or illness.
Disability insurance will not directly pay for any health care expenses related to an injury or illness. It only covers lost income.
Is hospital indemnity insurance worth it?
If you want maximum protection against unforeseeable events, you may want to consider buying all three types of coverage. This is especially true if you have a high-deductible health insurance plan that will require you to meet a large deductible before your health benefits kick in.
At the same time, if you believe you have enough emergency savings to cover what your health insurance won’t, you may not need it. This is especially true if you’re carrying a sizable balance in a health savings account (HSA).
One other factor you may want to consider is how susceptible you may be to COVID-19. According to the latest data from the Centers for Disease Control, a total of 63,152 laboratory-confirmed COVID-19-associated hospitalizations were reported as of October 17, 2020. The overall cumulative hospitalization rate was 193.7 per 100,000 population.
With the possibility of being hospitalized increasing due to COVID-19, it may be wise to consider signing up for hospital indemnity insurance during your open enrollment period, if it’s available.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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