"Understanding Health Insurance in India: Benefits, Tax Savings & Smart Choices"

Introduction

At Dynamic Tax Solutions, we believe that financial health is also as vital as physical health. Health insurance plays a crucial role in protecting your wealth from the rising cost of medical care and treatment. In this comprehensive guide, we explain how health insurance works, its benefits, tax exemptions under Section 80D, and why every family — should consider it a health insurance policy as a necessity. Whether you're planning to buy your first policy or looking to optimize your tax savings, this article is designed to help you make informed decisions.

What is Health Insurance?

Health insurance is insurance that covers the whole or a part of the risk of a person in medical expenses and medical treatment. It helps in managing the financial risk associated with healthcare by spreading the cost of medical treatment across a large group of policyholders.

A health insurance policy is a contractual agreement between the insurer (e.g., insurance company or government) and the insured (or a sponsor such as an employer or organization). This contract outlines:

a) The types and extent of healthcare expenses covered

b) The duration of the coverage (monthly, annually, lifelong)

c) The terms for renewal

d) The responsibilities of both parties

Is health insurance paid monthly or Quarterly or yearly?

Health Insurance Premiums can be paid on a monthly, quarterly, half-yearly, or annual basis, depending on the policy terms.

On an average monthly premiums range between Rs. 500 and Rs. 2,000 for basic health insurance plans for individuals depending on their age and other related benefits. Normally premium are significantly lower for young age individuals.

What is covered in health insurance?

Health insurance policies typically cover a broad range of medical costs, including:

a) Hospitalization expenses

b) Doctor’s consultation fees

c) Surgery and operation charges

d) Cost of medicines and diagnostic tests

e) Room rent and ambulance charges

Health insurance is administered by central organizations such as:

a) Government agencies

b) Private companies

c) Not-for-profit institution

What will not cover in health insurance?

Health insurance policies do not cover the following:

a) Pre-existing diseases like diabetes or high blood pressure are usually not covered initially, though some insurers offer coverage after continuous renewal.

b) Cosmetic surgeries such as Botox or liposuction are excluded as they are not medically necessary.

c) Alternative therapies such as acupuncture, naturopathy, and massage are not covered.

d) Abortion-related treatments are generally not covered under most policies.  It must be known here than Elective abortions aren’t covered, though medically necessary ones (e.g., life-threatening complications) may be.

e) Diagnostic charges for tests done to identify a condition are typically not reimbursed. Though Routine diagnostic tests may not be reimbursed, but if they lead to hospitalization, they are covered under pre‑ or post-care.

f) Pregnancy and related emergencies like C-section are not included in standard plans.

g) Extra charges like registration or service fees are not part of the insurance cover.

h) Supplements or health tonics are excluded unless prescribed during hospitalization.

i) Certain medical conditions like cataract, hernia, piles, joint replacement, etc., are often excluded or come with time-bound or partial coverage.

When You Have Health Insurance, You Still Have to Pay or Follow Some Rules or obligations?

Even though you have health insurance, you still have to pay certain amounts or follow specific rules. These are called "obligations," and they can include things like paying a fee when you visit the doctor or getting approval before treatment.

“These obligations affect how much you actually pay out of pocket. Here’s what they include:”

1. Premium

The fixed amount paid regularly (monthly, quarterly, etc.) by you or your sponsor (like employer) to keep the health insurance active.

2. Deductible

The amount you must pay out-of-pocket each year before your insurance starts paying. Example: If your deductible is ₹500, you must spend ₹500 first.

3. Co-payment (Co-pay)

A small fixed fee you pay every time you use a health service (e.g., ₹45 per doctor visit or for a prescription).

4. Coinsurance

Instead of a fixed fee, you pay a percentage of the total cost.

For example, if surgery costs ₹1,00,000, and your coinsurance is 20%, you pay ₹20,000 and the insurer pays ₹80,000.

5. Exclusions

Some items/services are not covered (e.g., disposable items, taxes), and you must pay these yourself.

6. Coverage Limits

Some policies only cover costs up to a certain amount (per year or lifetime). Anything above this limit must be paid by you.

7. Out-of-pocket Maximum

Once you have paid a certain total amount (max limit) from your pocket, the insurance will cover all remaining costs for that year.

For Example: If your out-of-pocket limit is ₹50,000, once you reach it, the insurer pays the rest.

8. Capitation

A fixed payment made by the insurer to a healthcare provider, who agrees to treat you without charging extra, no matter how often you visit.

For Example: Your clinic gets ₹5,000/month from the insurer to care for you.

9. In-Network Provider

Doctors or hospitals that have a tie-up with your insurer. Visiting them gives you better rates and benefits.

For Example: Visiting an in-network hospital may cost less than an out-of-network one.

10. Prior Authorization

You must get approval from the insurer before going for certain medical treatments. If not approved in advance, the insurer may not pay.

For Example: Getting an MRI scan might need pre-approval, or else the insurer may not pay.

11. Explanation of Benefits (EOB)

A summary document from your insurer after a medical service, showing what was covered, what they paid, and what you still owe.

For Example: After a hospital visit, you receive an EOB showing your bill, insurance payment, and your remaining amount.

Why every family must have Health Insurance?

Every family must have health insurance because it protects us from getting insolvent. Everyone know “Health is wealth” but in the present world it is now a fact that “Bad health can destroy your wealth”.

Health insurance offers us many benefits which are listed below:

1. Protects Your Savings: Covers big hospital bills, medicines, and surgeries — so you don’t drain your hard-earned money.

2. Full Hospital Coverage: Pays for pre- and post-hospitalization, room rent, surgeries, ICU — everything.

3. Cashless Facility: No need to pay at the hospital. Get treatment at network hospitals, and your insurer handles the bill.

4. Covers Small Procedures Too: Daycare treatments like cataract, chemo, and dialysis are also included.

5. Tax Advantage: Save money on taxes under Section 80D just by paying your premium.

6. Free Health Check-ups: Regular check-ups to catch health issues early — without paying extra.

7. AYUSH & Alternative Treatments: Get coverage for Ayurveda, Homeopathy, and other non-allopathic care. AYUSH treatments are included in many policies as optional; however, other therapies like aromatherapy, acupuncture, etc., are often excluded.

8. Maternity Benefits: Covers delivery, newborn care, and sometimes vaccinations.

9. Organ Transplants: Expensive surgeries like kidney or liver transplants are usually covered.

10. Ambulance Costs Covered: Don’t worry about emergency transport bills — they’re included.

11. No-Claim Bonus (NCB): Didn’t make a claim this year? Get higher coverage next year for free.

12. Wellness Rewards: Earn perks for walking, exercising, and staying fit.

13. Daily Hospital Cash: Get extra cash per day for your personal expenses during hospitalization.

"In the long run, investing in health insurance is more economical than paying unexpected medical bills."

What are the tax benefits of health insurance premium?

Covered Individuals	Premium Paid (₹) For Self, Family & Children	Premium Paid (₹) For Parents	Tax Exemption u/s 80D (₹)
Individual and parents < 60 years	25,000	25,000	50,000
Individual and family < 60 years but parents > 60 years	25,000	50,000	75,000
Individual, family and parents > 60 years	50,000	50,000	1,00,000
Members of HUF and NRIs	25,000	25,000	25,000

Key Points on Section 80D Tax Deduction

1. Total Deduction Limit: You can claim up to ₹1,00,000 if both self/family and parents are senior citizens.

2. Preventive Health Check-Up: Up to ₹5,000 is allowed within the total limit — can be paid in cash.

3. Non-Cash Payment Rule: All other payments must be made through non-cash modes (except point 2).

4. Medical Expenditure (No Insurance): If no health insurance is taken, you can claim deduction up to ₹50,000 for medical expenses of senior citizens.

5. Multi-Year Policies: Lump-sum premiums for multi-year policies are allowed proportionately per year (e.g., ₹60,000 for 3 years = ₹20,000/year).

6. Approved Insurers Only: Deduction allowed only if insurance is taken from IRDAI-approved insurers or under approved schemes.

7. Combined Limit Applies: Total deduction for premium + medical expenditure should not exceed ₹25,000 or ₹50,000 based on age.

8. Definition of Family: "Family" includes self, spouse, and dependent children. Parents are covered separately.

9. NRIs Eligible: NRIs can claim deduction for premiums paid for self, spouse, dependent children, or parents — if paid in India.

10. Resident Rule: Parents must be residents in India to claim medical expense deduction.

11. Preventive Check-Ups: Allowed only if conducted in India.

12. NRI senior citizens are not eligible for the ₹50,000 deduction under the "senior citizen" category of medical expenditure but they can claim ₹50K for senior citizen insurance premiums if paid in India

What is the GST rate on health insurance premiums?

“Current GST: 18% | Proposed: 5–12% (under review as of 2025)”

Current GST on health insurance premiums is 18%. A proposal suggests reducing it to 5–12% to lower costs, ease financial burden, and boost insurance coverage in India.

Conclusion

At Dynamic Tax Solutions, we strive to make tax planning simple, transparent, and rewarding for every household. Health insurance isn’t just a medical safety net — it’s a tax-saving, wealth-protecting tool. With the right policy and knowledge, you can safeguard your health and finances alike.

📞 Need help choosing the right plan or claiming deductions? Call us at 9577097967 — Our experts are here for you!