Translation:The health insurance is free of charge.
To clarify: Kostenlos means it is expected to be free; no price means that no price has been attached to it at any time. Gratis means that it ordinarily costs money, but is free right now, like in a special deal or a gift; free of charge meaning the ordinary charge/cost has been suspended.
My understanding is that gratis is used in situations where you get something "free" with something else. Like a "buy one get one free" offer or "your hotel room comes with free wi-fi". For other examples see: http://context.reverso.net/translation/german-english/gratis.
Not necessarily. I can think of several scenarios in which you could say just "insurance" and mean car insurance or fire/flood/earthquake insurance, etc. As long as you are already talking about cars or earthquakes, you can just ask, "Do you have insurance?" and nobody will assume health insurance.