Why are health plans sold by Paytm and PhonePe cheaper?

Why are health insurance policies sold by banks, or the likes of Paytm and PhonePe, much cheaper? How do these plans work? Are there any potential drawbacks one should be aware of?

—Name withheld on request

Health insurance plans offered by banks or mobile apps are often cheaper because they are typically group plans. These plans are available exclusively to members of a specific group, such as bank account holders or KYC-approved app users. 

While these plans may appear attractive due to their lower cost, it is important to be aware of their limitations and potential drawbacks:

• Coverage tied to group membership: Group insurance policies are valid only as long as you remain part of the group. For example, if you close your bank account or stop using the app, your coverage will end. This means your insurance is closely tied to your continued membership in the group.
• Limited-term contract: These policies are generally issued for a one-year term. At the end of the year, the insurer may review the policy based on the claims experience and adjust the terms or premiums. This means your coverage and costs could change annually.
• Risk of cancellation: There’s always a risk that the policy could be discontinued if the insurer or the group decides to withdraw it. In such cases, you might be left without coverage and could be offered an alternative retail policy with potentially higher costs and different terms.
• Lack of control: Since the terms of a group plan are negotiated by the group owner (such as the bank or app), you have no say in the policy details. If the group decides to cut costs, you might find yourself with reduced benefits or higher premiums, which may not suit your needs.

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In summary, while group plans may seem like an attractive option due to their lower cost, it’s important to be aware of their limitations and risks. Ensure you understand the full implications before committing to a plan.

I heard health insurance companies cannot reject a claim if a policyholder continues paying premium for 5 years. I believe it is called moratorium period. Why do claims still get rejected? 

The moratorium period for health insurance policies in India, which was reduced to 60 months in April 2024, plays a crucial role in claim acceptance. During this period, insurers cannot deny a claim based on non-disclosure or incorrect information, except in cases where fraud is proven. Meaning, insurers can still deny a claim if they can prove fraud. 

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What constitutes fraud? Well, under the Indian Contract Act of 1872, fraud is defined as any act intended to deceive or induce someone into a contract. This includes:

• Making a false statement as a fact
• Concealing a material fact known to the party
• Making a promise without intending to keep it
• Any other deceptive act intended for personal gain

In essence, fraud involves intentionally deceiving someone for personal benefit.

So, for an insurer to reject a claim after the moratorium period, they will need to provide documentary evidence proving: 

• Non-disclosure or misrepresentation, and
• You were aware of this non-disclosure or misrepresentation, and
• There was a willful intention to deceive the insurer.

If an insurer denies your claim alleging fraud after the 60-month moratorium period, you might need to challenge their decision in court. And, the insurer will have to prove their fraud claims with solid evidence.

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—Aayush Dubey is co-founder and research head of Beshak.org