South Carolina Insurance Practice Exam

What does an indemnity plan provide to the insured?

1. A fixed percentage of total costs

2. A specific dollar amount for services

3. A percentage of premiums paid

4. Coverage for all expenses incurred

The correct answer is: A specific dollar amount for services

An indemnity plan primarily provides a specific dollar amount for services rendered. This type of health insurance plan operates on a fee-for-service basis, allowing insured individuals to seek care from any health care provider and, in turn, reimbursing the insured for a predetermined dollar value for those services. For instance, if a medical service costs more than the amount specified by the indemnity plan, the insured would be responsible for the remaining balance. This structure gives policyholders the freedom to choose providers without a network restriction, but it also requires them to have an understanding of their coverage limits and potential out-of-pocket costs. The other options do not accurately define the benefits of an indemnity plan. While a fixed percentage of total costs could relate to other insurance types, it does not describe how indemnity plans specifically operate. Coverage for all expenses incurred is also misleading, as no insurance plan typically covers every single cost associated with health care. Lastly, a percentage of premiums paid is not relevant, as it does not pertain to the benefits received under the plan, but rather to the structure of how premiums are determined or paid.