Mental Health Insurance: Crucial Details Most People Miss In Their Policy

You will find many health insurance brochures that now say “mental health covered.” But look closer, and what is promised on paper is not always what is delivered in practice. As India observes National Insurance Awareness Day, it is a good time to ask a simple but critical question: If your insurance says it covers mental health, does it actually help when it matters?

The answer depends on the fine print. And when it comes to mental health, that fine print can get surprisingly tricky.

Hospitalisation is Just One Part; Most Care Isn’t

For starters, most mental health treatments do not happen in a hospital. People go to therapy sessions, take prescribed medication, and see specialists over time, often without being admitted. However, many insurance policies only cover in-patient care, meaning you need to be hospitalised for the coverage to kick in.

“Just spotting the word ‘included’ is not enough,” says Manju Dhake, Head of insurance Advisory Practice at 1 Finance, a personal finance advisory firm, “What really matters is the extent of that coverage.”

She adds: For example, does your plan cover therapy sessions, counselling, or psychiatric medication outside of hospitalisation? Or is it limited to in-patient treatment only? Look closely at sub-limits, waiting periods, and even room rent capping as these often influence how much you will actually get reimbursed.

If the policy does not cover outpatient treatment, which includes therapy, counselling, and psychiatric consultations, you will be paying out-of-pocket for the kind of support that most people actually need.

Read the Caps and Conditions Carefully

Even plans that do offer mental health coverage often add specific sub-limits. These can include:

• Limits on the number of therapy sessions per year

• Fixed maximum amounts reimbursable for mental health-related claims

• Stricter waiting periods, especially if the condition is pre-existing

“These limits can reduce the value of the policy significantly, especially if someone needs long-term or frequent care,” notes Dinesh Mosamkar, Senior Vice President, Consumer Underwriting, TATA AIG General Insurance. “A policy may or may not have specific exclusions related solely to mental health. However, general policy exclusions, terms, and conditions often apply and are equally relevant to mental health treatments,” he adds.

The Irdai Rule You Should Know

Since October 2022, insurers have been required by the Insurance Regulatory and Development Authority of India (Irdai) to treat mental illnesses on par with physical ones, but that rule only applies to hospitalisation.

So, yes, if you are admitted for a psychiatric condition, your claim must be treated the same as a physical illness. But for day-to-day treatment or preventive care, insurers are not yet required to match that parity.

Which means some do and many don’t.

Other Easy-to-Miss Details

When looking at your policy document or comparing options online, there are a few other specifics worth checking:

Does the insurer ask for additional paperwork? Some policies need documentation from registered mental health professionals to even consider your claim.

Is there a co-pay? A few plans apply different co-payment rules to mental health claims, meaning you might end up bearing a larger share of the cost.

Are room-rent limits going to affect hospitalisation reimbursement? In case of admission, this can quietly eat into your final payout.

A Coverage Checklist That Actually Helps

Here is a short list to go back to when reviewing your policy:

• Is outpatient treatment covered, or just hospitalisation?

• What are the annual caps for therapy sessions, if any?

• Are psychiatric medications reimbursed?

• What is the waiting period for pre-existing mental health conditions?

• Are there specific documentation requirements for claims?

• Do co-pay or sub-limit rules differ for mental illnesses?

Why This Matters More Than Ever

Mental health coverage is no longer a luxury add-on; it is a necessity. But the reality is: most people don’t know what they are covered for until they actually need care. And by then, it’s often too late to change course.

So if you are reviewing your health insurance this National Insurance Awareness Day, or thinking of buying a new plan, don’t just scan for the words “mental health included.” Ask what that really means and insist on clear answers. Because insurance is bought to help cushion your finances while you recover from medical ailments, not add to the stress.