Insurance Your rights in life and health insurance claims: Unpacking the moratorium clause
Summary
- As per India’s insurance laws, insurers cannot reject a claim on the grounds of non-disclosure of an existing disease or misstatement after 3 years in the case of life insurance policies and 5 years for health policies. And yet, conditions apply.
The fatal shooting of Brian Thompson, who was chief executive of UnitedHealth Group Inc.’s insurance arm, has turned the spotlight on insurance companies rejecting policyholders’ claims for various reasons. In India, insurance laws offer policyholders a powerful tool they can invoke if insurance companies reject their claims arbitrarily. But it may still require some running around before getting insurance companies to pay up.
Take the case of Kolkata-based Sabita Mukherjea, who had been hospitalized due to a respiratory tract infection. “First, the insurer did not approve the cashless claim and later rejected the reimbursement claim saying hospitalisation was not necessary. I had paid more than seven premiums in the policy," Mukherjea said.
However, as per the moratorium clause for health insurance policies as defined by the Insurance Regulatory and Development Authority of India (Irdai), if a policyholder has paid five or more annual premiums, an insurance company cannot reject their claim even if they had not disclosed a pre-existing disease or any other important information.
“No policy and claim of health insurance shall be contestable on any grounds of non-disclosure and/or misrepresentation except for established fraud, after the completion of the moratorium period, i.e., 60 months of continuous coverage," reads section 13 of chapter I of the Master Circular on IRDAI (Insurance Products) Regulations 2024–Health Insurance.
In life insurance, if a policyholder has consistently paid three annual premiums, an insurance company cannot reject a claim on grounds of misstatement or non-disclosures, or even fraud.
“No insurer shall repudiate a life insurance policy on the ground of fraud, if the insured/beneficiary can prove that the misstatement was true to the best of his knowledge and there was no deliberate intention to suppress the fact or that such misstatement of or suppression of material fact are within the knowledge of the insurer," states the Insurance Laws (Amendment) Act, 2015.
Moratorium in health insurance
In health insurance, an insurer can contest a claim on the grounds of fraud even after five years.
“One should not misread the (moratorium) clause. When you buy a policy, you must declare your health conditions in totality. If you hide a major disease which would have caused the insurance company to reject your policy proposal in the first place, they can reject your claim even after 5 years are over, and rightfully so," said Harshvardhan Roongta, chief executive of Roongta Securities. “The (moratorium) clause is valid only if an insurer has rejected your claim for a non-critical disease."
The moratorium clause came to the aid of Mukherjea after she reached out to Insurance Samadhan, an insurance grievance redressal company. “We often receive such cases in health insurance where the moratorium period is over but the insurer still rejects the claim classifying it as fraud," said Shilpa Arora, co-founder of Insurance Samadhan. “Sabita’s claim was finally approved when we emphasized on the moratorium clause and the fact that the doctor advised hospitalisation."
The years specified under the moratorium clause apply even when a policyholder ports a policy to another insurer. “The accrued credits gained under the ported and migrated policies shall be counted for the purpose of calculating the moratorium period," Irdai stated in its circular.
For example, if you have paid two annual premiums for a health insurance policy and then ported it to another insurer, you only have to pay three more annual premiums to complete the moratorium period.
However, if you increase the insurance cover in the ported policy, the moratorium period will start afresh on the increased sum insured. If you had a cover of ₹10 lakh in the original health insurance policy and ₹30 lakh in the ported policy, the original ₹10 lakh cover will have a remaining moratorium period of three years and the additional ₹20 lakh will have a five-year moratorium period. Also, if you include a no-claim bonus of, say, ₹10 lakh in the ported policy, the new 5-year moratorium will apply only to ₹10 lakh.
The moratorium period in health insurance used to be 8 years but was reduced to 5 years in May 2024.
Moratorium in life insurance
Section 45 of the Insurance Act, 1938 states that no life insurance policy shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy—i.e., from the date of issuance of the policy, the date of commencement of risk, the date of revival of the policy, or the date of the rider to the policy, whichever is later.
“The difference between the moratorium clause in life and health is that claims in the latter can be denied on the grounds of fraud, but not in the former," said Mahavir Chopra, co-founder of Beshak.org, a digital insurance marketplace.
However, insurance companies still find ways around this.
Madhya Pradesh-based Kabir Zaidi’s father had bought life insurance policies from multiple insurers, including two policies of ₹25 crore each from Life Insurance Corporation of India and a private insurer.
LIC cleared the claim for Zaidi’s father but the private insurer denied payment stating that the policyholder had not disclosed information about the LIC policy, according to Zaidi.
“My father had disclosed details of every single insurance policy to the insurer, including the one taken from LIC, and yet the claim was rejected. I approached the consumer court, but it did not help. I plan to re-appeal," said Zaidi.
To be sure, Zaidi’s father had bought the policy from the private life insurer in 2014.
“The amendment to the Insurance Act happened in 2015, before which insurers could reject claims even after 3 years in case of fraud. Since they (the private insurer) have categorised Zaidi’s case as a fraud, they said the amendment is not valid. But it is valid. I must emphasize that it is not a fraud claim either," said Sanjay Aggarwal, co-founder of Insurance Samadhan.
