Health Insurance Basics: How It Works and 8 Things to Check Before You Buy

Health insurance pays for your hospital treatment so that one illness does not wipe out your savings. It sounds simple, but most claim disputes come from a handful of terms that people do not read before buying. This guide explains how a policy works and the eight things worth checking before you pay the premium.

The key points

• You pay a yearly premium. In return the insurer pays covered hospital bills up to the sum insured.
• A government scheme such as Ayushman Bharat is not a replacement for a policy if you want a choice of hospitals and a larger cover.
• Buy early. Waiting periods run from the day your policy starts, and a long claim-free history protects you later.
• Always disclose existing illnesses honestly. Hiding them is the most common reason a claim is rejected.

How a claim works

	Cashless	Reimbursement
Where	Network hospitals only	Any hospital
Who pays the hospital	The insurer settles directly with the hospital	You pay first, then claim the money back
What you do	Show your health card at the hospital’s insurance desk. For a planned admission, get approval in advance.	Keep every bill, report and the discharge summary, and submit them to the insurer

Even in a cashless claim, you pay for items the policy does not cover, such as some consumables. Always ask the hospital for an estimate and check it against your policy.

Eight things to check before you buy

1. Sum insured

This is the maximum the insurer pays in a year. Hospital costs vary a lot by city and by treatment, and for a family living in a big city a cover of ₹5 lakh can fall short for a major illness. There is no single right amount, so think about your city, your family’s age and what you can afford. Many people pick a base policy and add a super top-up, which costs much less than a large base policy and pays only after your bills cross a set amount.

2. Waiting periods

• Pre-existing diseases (illnesses you already have): waiting period can be at most 36 months under current IRDAI rules, and often it is shorter. Compare this across plans.
• Specific illnesses such as cataract, hernia or joint replacement: commonly 1 to 2 years.
• Initial waiting period: most policies do not pay for illness in the first 30 days, except accidents.

3. Moratorium period

After 60 months (5 years) of continuous cover, the insurer cannot reject a claim for non-disclosure or wrong information, except in proven fraud. Continuous cover with your earlier insurer counts if you port your policy.

4. Room rent limit and co-pay

Some policies cap the room rent, for example 1% of the sum insured per day. If you take a costlier room, the insurer can also cut other charges in the same proportion. A co-payment means you pay a fixed share, such as 10% or 20%, of every claim. Both reduce what you receive, so prefer plans with no room rent cap and no co-pay if the premium difference is reasonable.

5. Network hospitals

Check that good hospitals near your home and your parents’ home are in the insurer’s cashless network.

6. What is covered besides the hospital bill

• Treatment before and after admission (commonly 30 to 60 days before and 60 to 90 days after)
• Day-care procedures that do not need 24 hours in hospital
• Home treatment (AYUSH treatment and domiciliary cover are included in some plans)
• Ambulance charges
• Yearly health check-up
• Restoration of the sum insured, if you use it up during the year
• No-claim bonus, which increases your cover for every claim-free year

7. Exclusions

Read the list of what is not covered. Cosmetic procedures, injuries from adventure sports, and treatment that does not need admission (OPD) are usually excluded unless you buy an add-on.

8. Claim record and service

Look at the insurer’s published claim settlement figures and complaint record, and read recent customer experiences. Do not choose on the cheapest premium alone.

Individual policy or family floater?

A family floater gives one sum insured that all members share. It is cheaper for a young family. An individual policy gives each person their own cover, which suits older parents, who should ideally have a separate policy so that their higher premium and claims do not affect the rest of the family.

Your rights as a policyholder

• Free-look period. After you buy a policy you get about 30 days to read it and cancel for a refund of the premium (less small charges) if you do not agree with the terms.
• Portability. You can move your policy to another insurer at renewal without losing the waiting periods you have already completed. Apply well before the renewal date.
• Faster cashless decisions. IRDAI rules say insurers must decide a cashless request quickly (within about an hour) and approve discharge within about three hours.
• Lifelong renewal. Insurers cannot refuse to renew your policy only because you made claims.

Tax benefit under Section 80D

Under the old tax regime you can deduct health insurance premiums: up to ₹25,000 for yourself, spouse and children (₹50,000 if you are a senior citizen), and a further ₹25,000 for your parents (₹50,000 if they are senior citizens). The new tax regime does not allow this deduction. See our old vs new tax regime guide to compare.

Since 22 September 2025, individual health insurance premiums are also exempt from GST, which lowers the cost of buying or renewing a policy.

If a claim is rejected

1. Ask for the rejection in writing, with the exact policy clause the insurer relies on.
2. Write to the insurer’s grievance officer with your documents.
3. If you get no reply within 30 days or are not satisfied with the answer, register a complaint on IRDAI’s Bima Bharosa portal.
4. Approach the Insurance Ombudsman of your region. It is free, and you can do it without a lawyer.

If you already qualify for a government scheme, see our Ayushman card guide.

Sources

• IRDAI Master Circular on Health Insurance Business (29 May 2024): the regulator’s rules on waiting periods, the moratorium, cashless claims, portability and renewal
• Business Today: IRDAI sets a 3-hour limit for cashless claim approvals
• IRDAI website, including the Bima Bharosa complaint portal
• Pre-existing disease waiting period and moratorium rules

Last checked: 28 October 2026. Policy terms differ by insurer and plan and IRDAI rules change, so read your policy document and confirm with the insurer before you buy. This guide is general information, not insurance advice.