Is Hospital Indemnity Insurance Worth It? Questions to Ask

Hospital indemnity insurance pays you a set cash benefit if you're admitted to the hospital. Whether it's worth it depends less on the policy itself and more on your situation: the health coverage you already have, the money you have set aside and how you'd handle a sudden bill.

If you want the basics first, our guide to what hospital indemnity insurance covers explains how it works and what it typically pays for. This post is about the decision: is it a good fit for you?

This is general information. Benefits, limits and rules vary by policy and insurance company.

Start with your own health plan

The value of hospital indemnity coverage depends on what your main health insurance leaves for you to pay. Pull out your plan's summary of benefits and look for:

• Your deductible. How much do you pay before your plan starts sharing costs?
• Hospital copays or coinsurance. Some plans charge a set amount per day or per stay. Others charge a percentage.
• Your out-of-pocket maximum. This is the most you'd pay for covered care in a year.

If a hospital stay could leave you with a bill in the thousands, a cash benefit may help. If your plan already covers most of the cost of a stay, the coverage may matter less to you.

Then look at your budget

Ask yourself honestly: if you were admitted to the hospital next month, how would you pay your share? Could you cover it from an emergency fund without stress? Or would it go on a credit card?

It's also worth thinking past the hospital bill. A stay can come with lost wages, extra childcare, travel for a family member or help at home afterward. Because hospital indemnity benefits are generally paid to you, you can use the money for any of those.

Compare the premium with the benefit

A simple exercise can help. Add up what you'd pay in premiums over a year, then compare it with what the policy would pay for a typical stay under its terms. Neither number tells the whole story, but together they show you what you're buying. Remember that you may never be hospitalized, and that's a good outcome, even if the policy never pays.

Questions to ask about the policy

Before you apply, make sure you understand:

1. What triggers a benefit? Is it an inpatient admission only, or are observation stays, emergency room visits or outpatient surgery included?
2. How is the benefit paid? Is it a flat amount per admission, a daily amount or both, and are there limits on days per stay or per year?
3. Is there a waiting period? Some benefits may not be available right away, and some apply only to sickness, not to accidents.
4. How are pre-existing conditions handled? Many policies limit benefits for conditions you were treated for before coverage started.
5. Can the premium change? Find out whether rates can go up and under what conditions.
6. What happens as you age? Ask whether coverage continues and whether the benefit changes at certain ages.

Who often finds it useful

People who tend to take a closer look include:

• Families with a high-deductible health plan
• People who are self-employed or would lose income during a hospital stay
• People with a health plan that charges daily hospital copays
• Anyone who wants a cushion for the costs a hospital stay can bring

People who may not need it include those with a large emergency fund or a health plan that already covers most hospital costs.

Keep in mind

Hospital indemnity insurance is supplemental coverage. It isn't major medical insurance, it isn't Medicare and it doesn't replace your health plan. It's meant to work alongside it. For more on this and related options, see our hospital indemnity insurance page and our overview of supplemental health coverage.

Get a second set of eyes

Matt MacMillan is an independent insurance broker in Mooresville who helps families across Lake Norman decide whether supplemental coverage makes sense. He'll look at the health plan you have now, walk through the numbers with you and compare hospital indemnity options from the companies he represents. If it doesn't fit your situation, he'll tell you. You can meet in person, by phone or by video, and there's no fee for his help.

This article is general information, not legal, tax or financial advice. Coverage, rules, features and availability may vary by insurance company and state, and every policy is subject to the insurer's underwriting and eligibility rules.