Understanding the Moratorium Period in Health Insurance

Understanding the Moratorium Period in Health Insurance

The moratorium period in health insurance is a specified timeframe after which insurers cannot reject claims based on non-disclosure or misrepresentation of pre-existing conditions (PED). Also known as the look-back period, it allows insurers to investigate inconsistencies in the application. Once the period ends, PED claims cannot be denied, except for fraudulent claims or permanent exclusions.

The IRDAI has reduced the moratorium period from 8 to 5 years, effective April 1, 2024, for all health insurers in India. However, claims during this period may still be subject to waiting periods, sub-limits, or co-payment clauses.

What is the Need for a Moratorium Period?

The moratorium period is essential to prevent individuals from purchasing health insurance only after being diagnosed with pre-existing conditions. This practice would lead to higher insurance claims and increased premiums. By encouraging people to buy health insurance early, particularly those at higher risk of pre-existing conditions, it helps manage financial risk for insurers. It also ensures that insurers maintain affordable premiums. 

Moreover, the moratorium period promotes transparency, as policyholders are motivated to disclose their medical history accurately, knowing their pre-existing conditions will be covered after 5 years.

Benefits and Importance of Moratorium Period in Health Insurance

1. Minimises Risk for Insurance Providers: The moratorium period prevents individuals from purchasing health insurance only after being diagnosed with a severe illness, thereby reducing the financial burden on insurers.
2. Helps Maintain Affordable Premiums: Insurers can maintain reasonable premium rates as the moratorium period allows them to collect premiums for 5 years before covering PED claims.
3. Fosters Transparency in Health Declarations: Promotes truthful declaration of medical history during policy purchase to avoid claim rejection later.
4. Supports Policyholder Loyalty and Trust: Provides assurance to policyholders that their legitimate claims will not be denied after 5 years, encouraging loyalty and trust in the insurer.
5. Motivates Early Purchase of Policies: Motivates individuals to buy health insurance early, as this ensures the moratorium period is completed before developing critical illnesses.
6. Ensures Mental and Financial Security: Policyholders are assured that pre-existing conditions will be covered post-moratorium, providing financial security and mental relief.

How Does the Moratorium Period Work in Health Insurance?

The moratorium period begins when the health insurance policy is purchased:

• During the Time of Purchase: Insurers ask applicants to disclose pre-existing diseases (PED). Supporting medical documents may be required for verification. A waiting period of 1-3 years (as per the new IRDAI guidelines effective 2024) applies for covering PED claims.
• During the Moratorium Period: Insurers can investigate claims for inaccuracies or non-disclosure. Also, PED-related claims may be rejected if found undisclosed or misrepresented during this time.
• After the Moratorium Period: After 5 years of continuous policy coverage, claims for PEDs cannot be denied unless fraudulent or linked to permanent exclusions.

The moratorium period not only protects insurers from misuse but also ensures fairness for policyholders by providing a transparent mechanism to address pre-existing conditions. By encouraging early investment in health insurance, it fosters a financially secure and health-conscious society.

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