Health insurance can help you pay for the medical care you need, but most plans have some difficult-to-bridge coverage gaps that can take you by surprise. For instance, according to HealthCare.gov, the average cost of a 3-day hospital stay is about $30,000. Even if you have insurance when you enter the hospital, you will still have to meet the deductible.

This is where hospital indemnity insurance can help. This form of supplemental insurance coverage will pay you directly if you need to go to the hospital, which can make medical care more affordable. Because health care needs tend to increase as a person ages, this protection can offer significant financial peace of mind in retirement.

Here we will discuss the particulars of hospital indemnity insurance so you can decide whether it's right for you.

How Does Hospital Indemnity Insurance Work?

When you sign up for hospital indemnity insurance, the insurer will pay you directly if you have to go to the hospital during the coverage period. Unlike health insurance, which pays the health care provider, this form of insurance pays out a cash benefit directly to the patient to help cover unexpected expenses associated with hospital stays.

That means you could use your benefit to pay for deductibles or prescriptions that are not covered, but you are also free to use the money to pay for everyday expenses, such as childcare, rent, food or help around the house when you get home.

In general, you can expect this kind of insurance plan to cover three main costs:

• Admission to the hospital: You receive a fixed benefit if you need to be admitted to the hospital, no matter how long your stay lasts.
• Overnight stays: Most plans provide a fixed daily benefit for each night you must stay at the hospital. This amount is lower than the admission benefit.
• Intensive care: If you need to stay in the ICU overnight, most policies will provide you with an additional daily fixed benefit for each night you spend in the ICU.

Some policies also offer benefits for trips to the emergency room (even if you are not admitted to the hospital) and ambulance rides. However, there are generally limits to the number of admission payments allowed per year, as well as limits to daily benefits.

Covering Gaps in Medicare

This insurance option can provide important coverage for Medicare beneficiaries, as Medicare does not fully cover hospital stays or unexpected expenses from a trip to the hospital. For example, original Medicare has a $1,484 co-insurance cost (as of 2021) for any necessary hospital stays, and a stay that lasts longer than 60 days triggers a $372 per day co-insurance charge.

Because Medicare beneficiaries are most likely retired and living on a fixed income, an unplanned hospital stay could significantly affect their budget, but hospital indemnity insurance can reduce the impact of these expenses considerably.

Who Needs Hospital Indemnity Insurance?

While this kind of coverage can help cover unexpected expenses, it may not be the right choice for everyone. It's important to remember that it cannot take the place of traditional health insurance; it can only supplement your regular insurance to help make medical costs more affordable.

Also, though hospital indemnity insurance tends to be relatively inexpensive, the cost does go up as you age. You will want to crunch the numbers to determine whether the cost of your monthly premiums is worth the potential benefit, especially if you don't expect you will require hospitalization or if the cost of premiums is too high. In either of those cases, it might make more sense to save or invest the amount you would have spent on premiums.

Even excellent health insurance policies may have coverage gaps for high-cost situations, such as hospital stays. Make sure you consider how much your regular health insurance would cover if you were hospitalized so you can determine whether you might need hospital indemnity insurance to protect yourself and your finances.