What distinguishes hospital indemnity policies from traditional health insurance?

Hospital indemnity policies are specifically designed to provide a fixed cash benefit to policyholders for each day they are hospitalized. This means that, unlike traditional health insurance that covers various medical expenses (such as surgeries, doctor visits, and prescriptions) based on actual invoices and treatment costs, hospital indemnity insurance pays a predetermined amount regardless of the total cost incurred during the hospital stay.

The benefit of this fixed daily payment structure is that it allows policyholders to receive cash that can be used for a variety of expenses resulting from hospitalization, such as copays, deductibles, or any out-of-pocket costs, thereby offering financial assistance during a potentially stressful time.

This characteristic makes the policy distinct, focusing on a specific aspect of health care rather than an overarching coverage of all medical expenses, which is what traditional health insurance typically encompasses. Traditional health insurance covers a wide spectrum of services and usually has its own network, exclusions, and prior authorization requirements for various treatments, which differs from the straightforward and fixed payment approach of hospital indemnity policies.