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Merritt Personal Lines Manual: Hospital Indemnity Plans

In theory, when a person is hospitalized, there are -- in addition to medical expenses -- additional living expenses incurred.

If the hospitalized person turns out to be a homemaker and mother, her family may incur day care and housekeeping expenses while she is in the hospital. And her hospitalization insurance may not cover all of the medical expenses. In short, the woman may well need additional money at the time of a hospitalization.

A hospital indemnity plan provides a daily benefit for each day you are hospitalized as an inpatient -- and this is paid without regard to the hospital expenses incurred. This daily amount is paid to you and the benefit is triggered simply by confinement as an inpatient.

An indemnity benefit may be $50, $100, $150, etc., per day. The total benefit due will be a simple total of the number of days you are in the hospital. If you are hospitalized for 10 days and the daily benefit is $100, then you are eligible for a total of $1,000.

Example: Tom has a major medical policy with a $500 deductible and 80 percent to 20 percent coinsurance on the first $5,000 of expenses. He also carries a $100 per day hospital indemnity plan. Tom is hospitalized for major surgery for a total of 20 days. In accordance with his major medical policy, he will have a minimum of $1,500 out-of-pocket expense. If Tom's total expense is $1,500, his hospital indemnity policy will provide him with a check in the amount of $2,000. This check is payable to Tom, not to the provider. Tom can use this amount in any way he pleases.

Generally, hospital indemnity plans are considered to be a supplemental coverage. You can't possibly cover all your hospital expenses with a $100 or even a $200 per day indemnity plan. If you need supplemental benefits -- reimbursement for deductibles and coinsurance payments -- then a hospital indemnity policy may make sense.

Hospital indemnity policies frequently are available directly from insurance companies by mail as well as through insurance agents. You will find that these policies offer many options on benefits and terms, so be sure to ask questions and find the right plan to meet your needs.

Some policies contain limitations on pre-existing medical conditions that you may have before your insurance takes effect. Others contain an elimination period (EP), which means that benefits will not be paid until after you have been hospitalized for a specified number of days. When you apply for the policy, you may be allowed to choose among two or three elimination periods, with different premiums for each. Although you can reduce your premiums by choosing a longer elimination period, you should bear in mind that most patients are hospitalized for relatively brief periods of time.

If you purchase a hospital indemnity policy, review it frequently to check whether you need to increase your daily benefits to keep pace with rising health care costs -- or whether your financial circumstances have changed enough that you can drop the coverage completely.

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