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All You Ever Wanted to Know About Zone-based Health Insurance

By Juhi Walia
07 November 2022, 4:59 PM

According to their population, Indian cities are divided into three categories. It was initially implemented for the allocation of House Rent Allowances. But now, the cost of health insurance policies is also one of the most significant applications of this classification.

Your premium payment for your policy is determined by a variety of factors in addition to your health and the amount insured under your healthcare policy. The price of your insurance policy is significantly influenced by the city in which you live. This system is known as zone-based health insurance. It enables different insurance providers to set premium costs based on the policyholder's residence city. When compared to metros, where lifestyle diseases are on the rise, hospitalization costs are lower in smaller urban areas. 

The majority of insurance companies extend the benefit to residents of smaller towns who purchase policies. For this, the zones are typically divided into 1, 2, and 3. Metro areas are usually considered to be in Zone 1, Tier 1 cities are in Zone 2, and the remaining cities in the nation are considered to be in Zone 3. This segmentation, though, differs from insurer to insurer.

But, how does it really help the policy buyers?

How Does A Zone-based Health Insurance Policy Actually Help?

A zone-based insurance plan can significantly lower the premium payments for people who live in Zone B or Zone C cities and seek medical care there. Zone-based valuation has the potential to reduce your premium by up to 10% to 20%. For instance, a person living in Delhi who is 30 years old would need to spend INR 9,043 to buy a INR 10 lakh health insurance policy. However, if moving to Agra, which is in Zone 3, the premium will be reduced to INR 7,995. This is one of the benefits that can lower people's financial obligations to their health insurance plans.

Additionally, they always have the choice to pay an additional premium for it and upgrade it if they want to seek healthcare in a Zone A city. The health insurance policy becomes adequate to cover the cost of treatment in the Zone A city when they upgrade to a higher zone.

How Can I Upgrade A Zone-based Health Insurance Plan?

Insurance companies provide zone upgrade add-ons that let policyholders benefit from upgrading their health insurance plans in accordance with the cost of medical care in their cities.

For instance, if you live in a Zone C city and your health insurance plan is only designed to cover medical expenses there, you can purchase the Zone-upgrade add-on to expand its coverage to include medical costs in Zone B or Zone A cities.

With this upgrade, you can obtain greater insurance coverage if you need medical attention in any of the Zone B or Zone A cities. Simply choose this add-on cover to upgrade your plan based on zones.

How Will A Zone-based Health Insurance Plan Be Affected If I Change My Residence?

It is necessary to inform the insurance provider company if you (policyholder) move from a metropolis to a smaller town so that the appropriate zone evaluation can be performed. The insured party may request a complete refund following the conclusion of the assessment. Today, some people have a greater faith in the infrastructure and medical progress found in large cities than in smaller towns. As a result, if you relocate from a big city to a small town but still desire to receive medical care there, you may do so by paying an additional premium.

Are There Any Drawbacks of Zone-based Health Insurance?

When it comes to zone-based plans, insurance providers mostly impose a copay clause. Copay in health insurance refers to the portion of the claim cost that the policyholder is responsible for paying out of his pocket. 

The insurance premiums may drop because of this copay provision, but you may ultimately have to pay more to cover the cost of your care. Therefore, the policyholder from a zone 2 or 3 city may have to copay 20% (INR 40,000) to get that treatment in Delhi if it costs INR 2 lakh. Furthermore, even if the treatment takes place in one of the insurance company's network hospitals, she will have to request the remaining INR 1,60,000 through reimbursement and will not be eligible for the cashless facility. This is the situation where the policy might work against you.


Health insurance programmes in cities have lower premium costs. But before choosing a policy, you should be aware of how payments are made for medical care received outside of your home city. Besides this, also note that only the premium varies according to the city of residence in zone-based pricing. Nothing about the policy's benefits or other aspects will change as a result. So, if you're ready to purchase a health plan, consider the information and factors mentioned above to help you make an informed choice.


1. Is it possible to avail off a zone upgrade policy for an existing policy?

This stipulation only applies to the insurance companies' policies. When an insurance provider offers an add-on, they may also impose a waiting period or other similar restrictions when you decide on upgrading. 

2. Is the co-payment clause advantageous for me?

The co-payment clause enables you to lower premium payments, but it may also result in a rise in your financial responsibility for claim settlements. Therefore, it is preferable to use a policy that does not include this clause.

3. Are all insurers using the same zone-based classification of cities?

No, different insurance companies may have different zone-based classifications for the purpose of charging premiums for health insurance policies.

4. Do all insurance companies offer zone-based pricing models in health insurance?

No, very few insurance companies offer zone-based health insurance pricing.

5. Why does the premium vary across cities?

The health risks, cost of living and the available medical facilities in each city contribute to the variance in premium costs across different cities.

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