Hospital Indemnity Insurance 101: Coverage, Costs and Key Benefits

Summary: Hospital indemnity insurance gives you a set cash payment when you’re admitted to the hospital, which you can use to help cover things like deductibles, copays or even everyday expenses. It’s a flexible supplement to health insurance, and it’s particularly handy for those with Medicare Advantage (Part C), high-deductible plans or frequent hospital visits.

Hospital stays can be costly, even with health insurance. A single visit may leave you with hundreds, or even thousands, of dollars in deductibles, copays and uncovered expenses.¹ That’s where hospital indemnity insurance comes in: it gives you a cash payment, sent directly to you, to help with hospital bills, daily expenses, or anything else you need during your recovery.

Suppose you’re hospitalized for three days and have Medicare or health insurance that has a $1,600 deductible and daily coinsurance. You’ll need to cover those costs out-of-pocket. Let’s say you also have a hospital indemnity plan, which pays you $250 for each day you’re in the hospital. For your hospital stay, you’d receive $750 total, paid directly to you.

You can use this money to help cover your deductible and coinsurance. Or, because the benefit is paid to you and not the hospital, you can use it however you choose, whether that’s covering medical bills, buying groceries, paying rent or managing other daily expenses during recovery.

What is hospital indemnity insurance?

Hospital indemnity insurance is a type of supplemental coverage that pays you a cash benefit when you’re admitted to the hospital, such as after surgery, an illness or an ICU stay. Unlike traditional health plans, which pay providers directly for covered services, hospital indemnity insurance is not major medical insurance. It’s a supplemental policy that pays you, the policyholder, a set amount when you’re hospitalized, regardless of what your primary insurance covers.²

Hospital indemnity insurance isn’t tied to provider networks, so you can use it no matter where you receive care.³ It works alongside many types of health insurance, including Original Medicare, Medicare Advantage, Medicare Supplement and Medicare Part D. It also works with employer-sponsored plans, ACA Marketplace coverage and private insurance. Since it pays you a cash benefit, you can choose to use it to help with out-of-pocket costs a primary plan may not fully cover like high deductibles or daily copays. Or, you can choose to use the benefits for other expenses.

What does hospital indemnity insurance cover?

Benefits are paid directly to you, so you can use the money where it’s needed most — whether for uncovered medical bills or daily living expenses while you recover. While coverage details vary by plan, most hospital indemnity policies pay benefits for:

• Being admitted to the hospital for illness, injury or surgery
• Staying in an intensive care unit (ICU) for critical care services
• Undergoing inpatient surgery during a covered hospital stay

Optional add-on riders may help expand your coverage beyond hospital stays. Depending on the plan, riders may provide cash benefits for services like:

• Outpatient surgery or therapy
• Skilled nursing facility stays
• Home health care services
• Ambulance and emergency room visits
• Urgent care treatment
• Cancer-related care
• Major diagnostic testing
• Prescription medications

Other features may include:

• No waiting period for benefits to begin
• Coverage for observational and mental health stays
• Non-consecutive hospital days are still eligible
• Guaranteed renewability for life
• Guaranteed approval: Many hospital indemnity plans offer guaranteed acceptance for applicants within certain age ranges, often beginning around age 64, which means you can enroll without undergoing medical underwriting or answering health questions.

Some insurers may offer these extra features, but not all do.

How does hospital indemnity insurance work?

Here’s how a typical policy works, step by step:

1. 1. Choose and apply for a plan: You can sign up for a hospital indemnity insurance plan directly or, in some cases, through an employer. Each plan lets you choose your benefit amounts, such as a set amount per day in the hospital, a one-time payment per stay, or both, within the options available from the insurer.

1. Experience a covered hospital stay: If you’re admitted due to illness, injury, surgery, or other reason, you may qualify for a benefit, even if your main insurance already covers part of the cost.
2. Submit your insurance claim: To receive your benefit, submit a claim directly to your hospital indemnity insurance provider.
3. Get a cash payment: Once your claim is approved, you’ll receive a direct payment based on the benefit amount you selected when you enrolled. This payout doesn’t depend on your hospital bill, instead, it’s a predetermined amount outlined in your policy.
4. Use the money however you need: There are no restrictions on how you use the funds you receive. You can apply them toward medical costs like copays and prescriptions or everyday expenses. The choice is yours.

Hospital indemnity vs. other supplemental insurance

While supplemental insurance options can help cover costs that your primary insurance doesn’t, each type serves different purposes and works in different ways.

Hospital indemnity insurance is often designed with older adults in mind, especially those enrolled in Medicare Advantage (Part C) plans. These plans can help pay for common out-of-pocket costs that Medicare Advantage may not fully cover, such as hospital copays, ambulance rides and daily charges for extended inpatient stays.

How much does hospital indemnity insurance cost?

Hospital indemnity insurance is generally more affordable than other types of supplemental insurance, with monthly premiums typically ranging from:

• $10–$20 for individual coverage
• $20–$40 for families

Senior-focused plans often let you customize your daily benefit amount and number of covered days to match your primary plan’s copays. The monthly premium then varies based on your age, selected benefit level and any optional add-ons you include.

Your exact premium depends on several factors, including your age, location, benefit level and whether the plan includes optional add-ons such as outpatient surgery or ICU coverage. Because it pays you a cash benefit rather than reimbursing providers, it tends to cost less than more comprehensive plans like short-term health insurance or critical illness coverage.

Who should consider hospital indemnity insurance?

This type of supplemental insurance can make a meaningful difference if you’re more likely to face high out-of-pocket costs from hospital stays. If any of the following sound like your situation, it may be worth a closer look:

• Adults with high-deductible health plans: These plans often come with significant deductibles and coinsurance before coverage kicks in.
• Medicare Advantage enrollees: Although Part C covers most hospital expenses, it often leaves you responsible for daily copays, ambulance rides or skilled nursing facility fees.
• Families and individuals with chronic conditions or frequent hospital visits: Those managing ongoing health issues, such as diabetes, heart disease or cancer, may have multiple hospital or outpatient stays.
• Self-employed individuals: Without employer benefits, self-employed people often shoulder all healthcare costs themselves.
• Families with children: Even routine procedures or accidental injuries can trigger unexpected hospital bills. And a family hospital indemnity plan helps cover pediatric hospital stays and associated costs, whether medical or living expenses.
• Anyone on a fixed income or looking for added financial protection: Hospital stays can come with unexpected costs. A hospital indemnity plan provides some peace of mind by offering a cash cushion you can use however you need.

Is hospital indemnity insurance worth it?

This coverage makes particular sense if:

• You’re concerned about high out-of-pocket costs
• You have a chronic health condition that may require hospital stays
• You want flexible funds during recovery

It may not be necessary if:

• You rarely use hospital services
• You maintain a large emergency fund

Things to consider before buying hospital indemnity insurance

Before applying for a hospital indemnity insurance plan, take a moment to review these key considerations to make sure that it aligns with your current needs:

1. Coverage limits: These policies define exact payout amounts, such as a set dollar amount per day in the hospital and a maximum number of hospital care days per benefit period — not per year. Once you reach that limit, the plan stops paying, even if you’re still hospitalized. A new benefit period typically begins after 60 consecutive days without a hospital stay. As such, it’s essential to confirm both the per-day benefit amount and the number of hospital care days available in each benefit period before you enroll.
2. Waiting periods and exclusions: Some insurers offer plans with waiting periods, such as a period without benefits for the first 30-90 days after enrollment. Others don’t have a waiting period for the base hospital indemnity product, so you will receive first-day coverage. Also, some policies exclude pre-existing conditions or don’t pay for recurring problems until you’ve been covered for a certain amount of time.
3. Coordination with existing health insurance: To comply with CMS rules, hospital indemnity insurance must be sold separately from primary insurance and must pay a cash benefit regardless of what your primary insurance covers.
4. Policy portability and renewability: Most hospital indemnity insurance plans are guaranteed renewable, meaning your insurer cannot cancel your policy as long as you pay premiums on time. Before you buy, confirm if your plan is fully renewable.

Key takeaways on hospital indemnity insurance

If you’re weighing whether hospital indemnity insurance is right for you, here’s a quick summary of how it works, who it benefits and why it might be worth considering:

• Provides cash payments for hospital stays, ICU care or recovery services, paid directly to you and not providers
• Complements your existing health insurance, offering added protection against out-of-pocket costs like deductibles, copays and non-medical bills
• May be especially useful for those with Medicare Advantage, high deductible health plans, chronic conditions or unpredictable hospital visits
• Flexible spending means you can use the money however you need — whether for medical expenses, rent, groceries, lawn care or recovery support
• Affordable monthly premiums, with plans often starting around $10–$20, depending on your age, location and benefit level
• Best suited for individuals or families who want a financial cushion during hospital stays

Learn more about hospital indemnity options from Mutual of Omaha

Mutual of Omaha offers hospital indemnity options designed with four key strengths in mind:

1. Flexible plan design: Choose benefit options that match your needs, so you’re paying only for the health insurance coverage you need.
2. Straightforward claim process: Claims are designed for simplicity: just submit proof of your hospital stay, and receive a preset cash benefit directly into your hands.
3. Guaranteed renewable and portable: Designed to stay with you if you switch jobs or retire, the coverage remains in force as long as premiums are paid.⁴
4. Designed to fill coverage gaps: Through its supplemental role, it can help with common out-of-pocket expenses, which may be especially beneficial for Medicare Advantage or high deductible health plans.⁵

Ready to learn more?

Compare plan options, explore benefits and see how hospital indemnity insurance could fit your needs. Get a personalized quote and see if you qualify for a household discount with Mutual of Omaha.

Hospital indemnity insurance FAQs

Q1. What is the difference between hospital indemnity insurance and health insurance?

Hospital indemnity policies pay you a set cash amount for each hospital stay, no matter what the hospital charges. You decide how to use the money. Health insurance plans, on the other hand, pay medical providers directly for covered services and include federal protections such as essential health benefits and out-of-pocket cost limits.

Q2. Can Medicare help pay for hospital indemnity insurance?

No. Medicare does not offer or pay for hospital indemnity insurance. This type of supplemental coverage is sold separately by private insurers, such as Mutual of Omaha. It provides a cash benefit for qualifying hospital stays, which you can use to help manage out-of-pocket costs, such as deductibles, daily copays or ambulance fees, that aren’t fully covered by Original Medicare or Medicare Advantage.

Q3. Does hospital indemnity cover outpatient surgery?

Hospital indemnity insurance typically focuses on inpatient hospital care, meaning you must be admitted overnight to receive the base benefit. Outpatient surgery is generally not covered unless your policy includes an outpatient surgery benefit add-on.

Q4. How quickly do hospital indemnity benefits get paid?

Benefit payments are typically issued within one to two weeks after your claim is submitted and approved. To avoid delays, be sure to include all required documentation, such as hospital admission and discharge dates, when filing your claim. Processing times can vary by provider.

Q5. Can I use the indemnity cash for non-medical expenses?

Yes. Because hospital indemnity insurance pays a fixed cash benefit directly to you, there are no restrictions on how the money is used. You can apply the funds toward out-of-pocket medical costs or use them for non-medical needs like housing, utilities, groceries or transportation during recovery.

Sources

¹ Medicare.gov, Web page: Medicare Costs, Retrieved July 10, 2025, from www.medicare.gov/basics/costs/medicare-costs.

² CMS.gov, Web page: Short-Term Limited Duration Insurance and Excepted Benefits, Retrieved July 10, 2025, from www.cms.gov/newsroom/fact-sheets/short-term-limited-duration-insurance-and-independent-noncoordinated-excepted-benefits-coverage-cms.

³ CMS.gov, PDF: Health Coverage Basics Training, Retrieved July 10, 2025, from www.cms.gov/marketplace/technical-assistance-resources/training-materials/health-coverage-basics-training.pdf.

⁴ Medicare.gov, Web page: How Medicare Works With Other Insurance, Retrieved July 10, 2025, from www.medicare.gov/health-drug-plans/coordination.

⁵ CMS.gov, Web page: Know Your Rights When Using Health Insurance, Retrieved July 10, 2025, from www.cms.gov/medical-bill-rights/know-your-rights/using-insurance.

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