What Is Moratorium Period In Health Insurance?

What Is The Moratorium Period?

The moratorium period meaning refers to a fixed period of time after which an insurance company cannot deny a claim to the policyholder. For example, after expiry of the moratorium period, insurance companies cannot reject claims based on non-disclosure or misrepresentation of medical information. Insurers can however, reject claims even after the expiry of the moratorium time based on these cases:

• Fraudulent claims
• Claims which are excluded

The moratorium time period, also known as the look-back period, is designed to facilitate policyholders, ensuring that insurers cannot deny claims for discrepancies after a fixed period.

Also read what is deductible in health insurance.

Example of a Moratorium Period

Let's understand what is moratorium period in health insurance is through a real-world scenario.

Rajesh purchased a comprehensive health insurance policy worth ₹10 lakh in January 2025. During the application process, he disclosed all of his known medical history, but unintentionally forgot to mention his occasional chest pains. After five years, Rajesh suffered a heart attack and was immediately hospitalised. His total medical bill amounted to ₹ 6.5 lakh. When he submitted his claim, the insurer could repudiate it on the reason that Rajesh did not disclose his heart condition, but because of the moratorium time period, it couldn’t.

This illustrates how the moratorium phase protects policyholders from claim rejections due to honest oversights or errors of policyholders. In health insurance, the moratorium time is 5 years, shortened from 8 years by IRDAI.

Reason of Moratorium Period

Moratorium period meaning is to protect policyholders from being denied their claims at the right time. Let’s say a company provides group health insurance to its 100 employees. Among them, several employees may have undisclosed minor health conditions when they first enrolled.

After five years of continuous group coverage, if any of these employees need to file claims, the insurer cannot reject those claims solely on the grounds of non-disclosure. In the absence of a moratorium time, the insurer would reject the claims, and the policyholder would be left with no option but to pay out of their own pockets.

Also read the difference between top up and super top up health insurance.

Major Advantages of the Moratorium Period

The Insurance Regulatory and Development Authority of India (IRDAI) has reduced the moratorium time from 8 years to 5 years. This has brought on many new advantages for the policyholders, as stated below:

Keeps Premium In Balance

Insurers will undergo severe losses if they have to provide compensation for pre-existing diseases from the start date of policy purchase. A buffer time of 5 years helps insurers to first collect the premium, and then reimburse as per claims. This keeps premiums affordable, and insurers also do not incur massive losses.

Encourages Early Insurance Adoption

Many times, people tend to buy insurance later in their lives when they start to develop critical illness with age. The moratorium tenure encourages people to buy health insurance at an early age, and insurers have to pay for pre-existing diseases only after 5 years. People thus purchase insurance at a younger age rather than buying only to compensate for their immediate medical expenses.

Lowers Risks For Insurers

Moratorium meaning is the 5 years period after which insurers cannot contest a claim. For example, if someone buys off an insurance policy to cover their pre-existing diseases and claims a hefty hospital bill right within the first year, insurance companies would suffer major losses. A moratorium helps to lower risk by making insurers liable to cover only after the period expires.

Also read is sinus infection contagious and what founders and HRs should know.

How Moratorium Period Works

If you want to understand what is moratorium period is in detail, you first need to understand how it works in real life. Here’s how:

When The Policyholder Purchases a Policy

During the time of purchasing the policy, the insurers ask the applicants to disclose pre-existing diseases and supporting medical documents. The policyholder should not keep away any information withheld, and must disclose everything with maximum transparency. This will avoid all chances of the claim being rejected in future. Depending on the medical history and pre-existing diseases, the insurer will offer coverage after the waiting period expires.

After The Moratorium Time Expires

After the five years have expired, the insurer is now liable to offer coverage related to PED-related claims. The insurer cannot deny claims for any inaccuracies or non-disclosure after the moratorium time expires. In a company, the HRs need to make sure that the insurance policy covers PED conditions, and an employee does not raise any claim, which is a permanent exclusion after the moratorium time expires.

How To Calculate The Moratorium Period?

After learning moratorium meaning, the next step is to calculate the moratorium time period of your employee. Here are some simple steps to follow:

Determine The Date of Policy Activation

The moratorium phase starts from the date of the policy being active, or the date when coverage becomes effective for the employee. For example, if a group employee health policy has become active from May 18th, 2021, the moratorium date starts from May 18th.

Count The Years

Count five consecutive years from the date when the policy became active, including any policy lapses. A lapse occurs when premiums aren't paid or when there's a gap in coverage. For group policies, as long as the company maintains the master policy and pays the premium on time, continuity is preserved. For example, if the policy has become active on May 18th, the moratorium time will end on May 18th, 2025.

Count Continuously Even In Case of Porting

Even if you have ported the health policy, there is no concept of a moratorium time to reset back to the original date of purchase. Usually, during porting, your health policy premium changes along with some benefits, but not the moratorium time. You need to take into account the original date when the policy became active to count the moratorium duration.

What Is The Difference Between Moratorium Period And Waiting Period?

Here are the 5 main differences between moratorium tenure and waiting period:

Conclusion

The moratorium period is the time after which any insurer cannot deny claims due to non-disclosure of pre-existing diseases or any error. Although one has to continuously maintain the policy for continuous 3 years, the reward for it is that the insurer cannot reject the claim after the moratorium phase. For founders and young entrepreneurs, knowing this concept can help in formulating employee retention strategies and demonstrate organizational commitment to the wellbeing of the entire workforce.