IRDA 2024 guidelines on Pre-existing diseases and Moratorium period

The Insurance Regulatory and Development Authority of India (IRDA) on March 20, 2024 through its circular “Insurance Products Regulations, 2024”  has introduced changes regarding pre-existing diseases and the moratorium period in health insurance policies.

In this article, I have discussed-

• Details of the changes introduced.
• Impact of these changes on your policy premium.
• Current state of implementation

Pre- existing disease(s)

Before the current changes, IRDA’s Master Circular on Standardization of Health Insurance Products, dated July 22, 2020, defined pre-existing diseases as –

“Pre-existing disease means any condition, ailment, injury or disease:a) That is/are diagnosed by a physician within 48 months prior to the effective date of the policy issued by the insurer or b) For which medical advice or treatment was recommended by, or received from, a physician within 48 months prior to the effective date of the policy or its reinstatement.”

Means a policyholder who have had a pre-existing disease(s), must declare such disease(s) to insurance company before purchasing the health insurance policy. If the insurance company agrees to cover such disease(s), a waiting period of maximum up to 48 months may apply before coverage of such disease(s) under the policy 

Earlier, this 48-month period was the maximum waiting period an insurance company could impose for any pre-existing disease(s). 

However, starting from April 1, 2024, the IRDA has reduced this maximum waiting period from 48 months to 36 months.

Let’s check the revised definition of pre-existing disease(s) as per IRDA gazette notification “Insurance Regulatory and Development Authority of India (Insurance Products) Regulations, 2024”

“Pre-existing disease (PED) means any condition, ailment, injury or disease: a) that is/are diagnosed by a physician not more than 36 months prior to the date of commencement of the policy issued by the insurer; or b) for which medical advice or treatment was recommended by, or received from, a physician, not more than 36 months prior to the date of commencement of the policy.”

Now Pre-existing disease (PED) declared in proposal form and accepted for coverage by insurance company will get covered after 36 months of continuous coverage.  

It is also important to note that even if you have sought medical advice for a condition and no further treatment is taken/advised by doctor, you must still disclose this information to insurance company before purchasing a health insurance policy.

Specific Waiting Period

There may be disease(s) which may develop after you have bought the health insurance policy. These diseases are gradually on setting disease and policyholder may not be aware of such disease(s) during development stage. You can check the list of all such diseases in policy document.

These diseases are covered after a specific waiting period generally in range of 1 to 4 years. In this recent circular IRDA has capped maximum waiting period for such diseases at 36 months.

Moratorium period

Another major change introduced by IRDA through this circular is change in Moratorium period term.

Earlier IRDA has defined Moratorium period as :

“Moratorium Period: After completion of eight continuous years under this policy no look back would be applied. This period of eight years is called as moratorium period. The moratorium would be applicable for the sums insured of the first policy and subsequently completion of eight continuous years would be applicable from date of enhancement of sums insured only on the enhanced limits. After the expiry of Moratorium Period no claim under this policy shall be contestable except for proven fraud and permanent exclusions specified in the policy contract. The policies would however be subject to all limits, sub limits, co-payments as per the policy”

Now this definition of Moratorium Period is changed by IRDA in new gazette notification Insurance Products Regulations, 2024.

“After completion of sixty continuous months of coverage (including portability and migration) in health insurance policy, no policy and claim shall be contestable by the insurer on grounds of non-disclosure, misrepresentation, except on grounds of established fraud. This period of sixty continuous months is called as moratorium period. The moratorium would be applicable for the sums insured of the first policy. Wherever the sum insured is enhanced, completion of sixty continuous months would be applicable from the date of enhancement of sums insured only on the enhanced limits.”

 Following changes are made in moratorium period term:

• Period of 8 years is reduced to 60 months (5 years)

• Term is applicable on all policies including portability and migration, this is explicitly mentioned in the definition.

• No policy and claim shall be contestable by the insurer on grounds of non-disclosure, misrepresentation. Word non-disclosure which was not part of earlier definition has now been explicitly mentioned in new definition. 

This change in the moratorium term is very important as it has reduced the period from 8 years to 5 years and also including non-disclosure and misrepresentation under its ambit.

Most claims rejected by insurance companies fall under the ‘non-disclosure clause.’ Insurance is a complex subject, and sometimes, whether intentionally or unintentionally, policyholders fail to provide all necessary information during the purchase.

Most health insurance grievances stem from claims being denied due to ‘non-disclosure’ and ‘misrepresentation.’ To address these issues, the IRDA has made the rules clearer by specifically adding these terms to the definition of the moratorium clause.

Policyholders who have ported their health insurance policy from one insurance company to another also face issues in claims processing. Insurance companies often deny claims under such policies due to a lack of past claim histories. However, insurance companies can no longer deny claims under such pretexts after 60 months of policy commencement date.

Are these changes implemented in your health insurance policy? 

Short answer is NO. 

The IRDA releases new circulars and guidelines to ensure regulatory compliance, meet market requirements, support innovation and adaptation, and enhance risk management. These guidelines are followed by all insurance companies, but they do not automatically apply to existing insurance policies or products.

This is because new guidelines often introduce different risk levels that the insurance companies need to assess before implementation. Additionally, these guidelines can have financial impacts on the companies, as they may need to account for new risks.

Consequently, IRDA provides a timeline for insurance companies to implement these guidelines. The companies consider these risk factors and update their insurance products’ premiums accordingly. Therefore, when policyholders renew their policies, they may receive new features, sometimes at an increased premium.

Does including non-disclosure and misrepresentation in the moratorium clause give policyholders a free pass?

Including non-disclosure and misrepresentation in the moratorium clause poses a significant risk to insurance companies. This is because policyholders might deliberately hide important information, like chronic illnesses, and then make claims after 60 months have passed.

However, it is important to note that the ‘Disclosure of Information Norms’ is a separate policy clause that applies regardless of the moratorium clause.

Disclosure to information norms: The policy shall become void and all premium paid thereon shall be forfeited to the Company, in the event of mis-representation, mis description or non-disclosure of any material fact by the policy holder

For example, a policyholder who fails to disclose their diabetes might still have a claim approved after 60 months because of the moratorium clause of policy. However, the insurance company can still cancel the policy if it finds that the policyholder violated the ‘Disclosure of Information Norms’ by not revealing this condition.

Insurance can be complicated, and the best way to avoid future problems is to be upfront and honest with your declarations to the insurance company. Hiding important information can lead to costly consequences later on.