Skip to main content

Hospital Indemnity Insurance: What Is It and How Does It Work?

Published January 26, 2021

4 minute read

Cora Walker

By Cora Walker

When looking at different options for supplemental health insurance, it’s possible you’ve seen the phrase “hospital indemnity insurance.” However, you might not know what it means. In short, hospital indemnity insurance is coverage for a cash payout specifically in the event that you are hospitalized.

Even with health insurance, a trip to the hospital can be very pricey. Hospitals provide intensive support to those with an immediate medical needs. Despite health insurance usually paying part of that, you could still be left with hefty bills. You could be responsible for thousands of dollars in out-of-pocket expenses. Something like short-term disability coverage can help pay the bills during the recovery period should you need it. However, the idea of an extra stopgap — if you can afford it — is certainly appealing.

It can be difficult to decipher insurance riders and add-ons. The language can be complicated and confusing. How do you figure out what they mean or if they are right for you? A lot of them depend on your cash flow, the likelihood you will need to make a claim, and whether or not you already have three-to-six months of savings stashed away. With about two-thirds of people who file for bankruptcy doing so because of medical expenses, it’s natural that you would look at all your options for coverage.

When Does Hospital Indemnity Insurance Pay Out?

When exactly your hospital indemnity insurance pays out will depend on the exact language in your plan. However, it generally means you were admitted to a hospital for at least one night. How much of the plan you make a claim for depends on the length of your stay. They typically pay out more money for each subsequent night you are admitted. Some plans may pay out more if you are admitted for certain conditions, such as heart attack or stroke. It will not, however, cover emergency room trips where you were not officially admitted into the hospital.

Can A Provider Deny My Hospital Indemnity Insurance?

No. Since hospital indemnity insurance is a sum of money paid to you relative to the terms of your plan, providers cannot deny your insurance. It’s a pretty black and white arrangement. If you stay overnight at the hospital, your indemnity insurance will payout the pre-set amount. As an additional option, you can likely use it to pay any deductible you may have.

Average Cost of a Hospital Stay

The ambulance ride alone can sometimes cost up to $1,200 or more. That’s even with insurance. Paramedics have high-pressure jobs and must often make difficult decisions in the field about whether you need to go to the hospital or not. They will almost always err on the side of caution. That means it’s very possible that you could transported to the hospital for an issue that your health insurance later deems was not medically necessary. That might leave you to foot the bill for the full cost of the ambulance.

The average cost of a hospital stay in the United States is $15,734. This number can be increased by the severity of your condition, whether you required surgery, stay in the ICU, or if you have pre-existing conditions that might complicate your procedure. All of these can end up costing you more money. If you have health insurance to pay a portion of that, then that can help. However, you could still easily be left with a bill in the range of $2000-to-$5000. Or more.

Insurance That Pays You Directly

In the event that you require hospitalization, your hospital indemnity insurance plan will pay out a pre-determined lump sum of money. You will be able to use it you like. You could use it to pay hospital bills, keep utilities up to date if you had lost wages, or perhaps pay for medications meant to help you recover. Like critical care coverage, hospital indemnity insurance is designed to support you through a sudden expense during an emotionally fraught time.

The important factor here is that the money is not sent directly to the hospital itself, to offset you bills. On one hand, that’s a good thing because you have more control over exactly where the money is spent. You may have different priorities than the hospital does. On the downside, it’s easier for you to make a financial mistake with the lump sum payment. If that happens, you’ll still have those hospital bills lingering over your head.

Is Indemnity Insurance a Replacement for Health Insurance?

Absolutely not. If you spend extra money on hospital indemnity insurance at all, it should only be after you have three-to-six months of your expenses saved away in an emergency fund. Ideally, hospital indemnity insurance comes as a supplement to existing insurance. Your priority should always be to make sure you’re covered for the widest range of conditions. You want to be able to access the many benefits of standard healthcare, including visits to a primary care provider and other maintenance services. Taking advantage of those benefits could help make a hospital visit less likely in the first place.

Much like critical care insurance, indemnity insurance is best used as additional or supplemental coverage only once you already have decent health insurance. You can likely add it to your existing plan for a small increase in your monthly premium. Like most types of insurance, you’ll have to weigh whether you can afford the increased costs against the potential need to be hospitalized. Accidents can happen to anyone, so it’s always a good idea to be as prepared as possible.


Cora Walker

Cora Walker


Cora is a Northwest-based writer and editor who wants to make information as accessible as possible in the internet age. Video games are this writer’s primary vice. With a degree from the University of Washington as well as 5+ years of experience in web writing and publishing, Cora is here to share financial tips from experts and talk about good habits.

Explore Insurance

Young couple talking to insurance agent Insurance

How To Choose The Right Insurance Policy For You

Whether you are looking for homeowner’s, life, auto, renter’s insurance (or something a bit more random), it makes sense to get the best insurance policy for you. That also means getting it at the right price. Making sure you have the appropriate insurance is vital, since it will determine the type of protection you receive. […]

Read More about Post Title

8 minute read

Auto Insurance

The Best Car Insurance For Millennials

Millennials, also known as Generation Y, are the demographic sandwiched between Generation X and Generation Z. They are typically considered to be propleg born between 1981 to 1996. Most Millennials are the children of baby boomers and early Generation Xers. Today, most Millennials are between the ages of 25 and 40. They are working, raising […]

Read More about Post Title

6 minute read

See All In Insurance

More from WalletGenius

Young couple worried about finances Save Money

How To Tell If Your Retirement Is In Jeopardy

One of the most common financial concerns for adults these days is retirement. It comes up over and over again. For anyone concerned about money, retirement is a very big problem to confront. Current (and future) generations of working-aged Americans aren’t exactly fairing well, when it comes to retirement savings. Some studies have shown that […]

Read More about Post Title

7 minute read

Young woman worried about student loans Perkins loans Student Loans

Perkins Loans: Everything You Need To Know

A Perkins Loan was a federal program that provided low-interest loans to college students who demonstrated exceptional financial need. The program, which operated as the “Perkins Loan Program,” no longer exists. It was discontinued on September 30, 2017. The final disbursements were permitted through June 30, 2018. Although the program has been discontinued, many current […]

Read More about Post Title

5 minute read

Capital budgeting paperwork Budgeting

Capital Budgeting: A Complete Guide

Capital budgeting is a business term used to describe the process of determining how to best use the capital the company has on hand. Should they expand? Should they reinvest in a new factory to increase capacity? Is it profitable to acquire another business for expansion? In other words, capital budgeting is the process of […]

Read More about Post Title

7 minute read

Woman checking her credit score Credit

What You Need to Know About Free Credit Scores

You probably know that your credit score is an important aspect of your finances. Your credit score goes beyond just helping you get a loan with a good interest rate. It can also influence your insurance rates and even impact what happens when you sign up for internet or a cell phone plan. Knowing your […]

Read More about Post Title

7 minute read


EBITDA: What Is It and How Is It Calculated?

It might look like it, but EBITDA is not actually an alien word. It is an acronym that stands for “earnings before interest, taxes, depreciation, and amortization.” As you may have guessed by now, it’s a metric used in the business world. A company’s EBITDA can help you better understand their ability to generate cash […]

Read More about Post Title

6 minute read

Trusted provider of accurate rates & financial information