Moratorium Period in Health Insurance

What is the Moratorium Period?

Moratorium period refers to the timeframe after which health insurance companies cannot reject any claims based on 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 on the grounds of discrepancies in the declarations made in the proposal form. Only fraudulent claims and claims related to permanent exclusions can be rejected by insurers once the moratorium period is over.

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

Need for 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 payment.
• 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 a risk of developing a critical illness to buy health insurance in advance.
• 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 you about any existing illness or medical condition that you may suffer from. You must disclose your pre-existing illnesses truthfully to avoid claim rejections in future. The insurer may ask you to submit medical documents related to your pre-existing illness. Based on your medical records, the insurer may decide to cover your PED after a waiting period.

   The PED waiting period usually ranges from 1 year to 4 years. However, in the new IRDAI guidelines in 2024, insurers have been directed to reduce the maximum PED waiting period from 4 years to 3 years.

2. Once the Moratorium Period is Over:

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

Benefits of Moratorium Period in Health Insurance

Check out the key benefits of the 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 you purchase a mediclaim policy to cover your existing illness, it will increase the financial liability of the insurance company. But with the moratorium period in place, the insurer will be liable to cover your pre-existing disease only after collecting the premium 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 your PED claims from day 1, they will end up making losses. As a result, they will start charging you higher premiums. With the moratorium period, insurance companies will collect your premium for 5 years, which will help them to reduce their financial liability. Thus, insurers are able to keep their premiums low.

3. Promotes Peace of Mind

   The moratorium period promotes peace of mind among policyholders. With the moratorium period in place, you are assured of getting your PED medical expenses covered after 5 years of continuous coverage. This promotes peace of mind and allows you to focus on your treatment when you finally raise a PED claim after your 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 your pre-existing medical conditions for up to 5 years. As a result, you may want to invest in a health insurance policy early in life, i.e. before you develop a disease or medical condition. Doing so will ensure that the moratorium period of your health policy is over by the time you are diagnosed with a critical illness. Thus, the moratorium period encourages you 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:

Summing it Up

The moratorium period in health insurance is beneficial for both insurance companies and policyholders. While it protects insurers from increased financial liability, it safeguards policyholders from getting their PED claims rejected due to misrepresentation or non-disclosure. However, you should be aware of what is permanently excluded from your health policy to avoid rejection of your PED claims even after your moratorium period is over. Hence, make sure to read your policy document carefully at the time of buying the policy.