Moratorium Period in Health Insurance

What is Moratorium Period in Health Insurance?

Moratorium period in health insurance is the timeframe after which insurance companies cannot reject any claims due to non-disclosure or misrepresentation. Also known as the look-back period, it is a safety clause for policyholders designed to prevent insurers from denying claims due to discrepancies in the declarations made in the proposal form. Once the moratorium period is over, insurers can only reject fraudulent claims and claims related to permanent exclusions.

The moratorium period in health insurance is 5 years. It was reduced from 8 years with effect from April 1, 2024, as per the latest Insurance Regulatory and Development Authority of India (IRDAI) guidelines. Besides, the moratorium period is mandatory to follow for all health insurance providers in India.

Although the moratorium period prevents insurers from rejecting PED claims, the claim amount will be subject to any sub-limit, deductible or co-payment applicable to the medical insurance policy.

What is the Purpose of Moratorium Period in Health Insurance?

Take a look at the key reasons why the IRDAI introduced the moratorium period in health insurance:

• It encourages health insurance companies to do a thorough underwriting at the time of policy purchase before accepting the premium.
• It prevents insurers from rejecting claims due to indirect association with a pre-existing condition, citing non-disclosure or misrepresentation.
• It prevents people from buying health insurance only after they are diagnosed with a medical condition.
• It encourages people who are at risk of developing a critical illness to buy health insurance at an early age.
• It prevents insurers from charging exorbitant premiums to people with pre-existing diseases.
• It encourages people to disclose their medical history truthfully at the time of buying the policy.

How Does Moratorium Period Work in Health Insurance?

Here is how the moratorium period works in health insurance:

1. At the Time of Buying the Policy:

   Before issuing a mediclaim policy, the insurance company will ask the applicant about any existing illness or medical condition they may suffer from. People must disclose their pre-existing illnesses truthfully to avoid claim rejections in future. The insurer may ask them to submit medical documents related to the pre-existing illness or undergo a pre-policy medical check-up. Based on their medical records, the insurer will cover their PED after a waiting period.

   Note: The waiting period for pre-existing diseases usually ranges from 1 year to 3 years.

2. Once the Moratorium Period is Over:

   Once the health insurance moratorium period of 5 years is over, the insurance company will cover the medical expenses resulting from pre-existing illnesses. However, the insurer will not cover fraudulent claims and permanently excluded expenses.

Why Does Moratorium Period Matter in Health Insurance?

Check out the key benefits of moratorium period in health insurance:

1. Reduces Risk for Insurance Companies

   The moratorium period reduces the level of risk for insurance companies by preventing people from buying health insurance only after they are diagnosed with a major illness. If a person purchases a mediclaim policy to cover their existing illness, it will increase the financial liability of the insurance company. With the moratorium period in place, the insurer will be liable to cover pre-existing diseases only after collecting premiums for 5 years, reducing their financial burden.

2. Keeps the Premium Affordable

   Insurance companies are able to keep their premiums affordable with the help of the moratorium period. If insurers start paying PED claims from day 1, they will end up making losses. As a result, they will start charging higher premiums. With the moratorium period, insurance companies will collect premiums for 5 years, which will help them reduce their financial liability and keep their premiums low.

3. Promotes Peace of Mind

   The moratorium period promotes peace of mind among policyholders. With the moratorium period in place, policyholders are assured of getting their PED medical expenses covered after 5 years of continuous coverage. This also builds trust in the insurance company, allowing them to focus on their treatment when they finally raise a PED claim after the moratorium period is over.

4. Encourages Early Buying of Health Insurance

   As the moratorium period in India is 5 years, insurance companies are not liable to pay for the treatment cost of pre-existing medical conditions for up to 5 years. As a result, people may want to invest in a health insurance policy early in life, i.e. before they develop a disease or medical condition. Doing so will ensure that the moratorium period of their health policy is over by the time they are diagnosed with a critical illness. Thus, the moratorium period encourages people to buy health insurance at an early age.

Difference Between Moratorium Period and Pre-existing Disease Waiting Period

The moratorium period is a lot different from a pre-existing disease waiting period. Take a look at the differences below:

Things to Keep in Mind to Benefit from Moratorium Period in Health Insurance

Here are a few things to keep in mind to benefit from moratorium period in health insurance:

• Read the terms and conditions of their health insurance policy carefully to know about the moratorium period.
• Declare all pre-existing illnesses honestly at the time of policy purchase.
• Renew the mediclaim policy on time to ensure continuous coverage.
• Consult an insurance expert to understand the moratorium period better.
• Buy medical insurance at an early age before developing any disease or medical condition.