Why are health plans sold by Paytm and PhonePe cheaper?

Why are health insurance plans offered by banks or companies like Paytm and PhonePe much cheaper? How do these plans work? Are there any potential drawbacks to be aware of?

—Name withheld upon request

Health insurance plans offered by banks or mobile apps are often cheaper because they are usually 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 seem attractive due to their lower cost, it is important to be aware of their limitations and potential drawbacks:

• Group Membership Coverage: Group insurance policies are only valid for as long as you are part of the group. For example, if you close your bank account or stop using the app, your coverage will end. This means that your insurance is closely tied to your continued membership in the group.
• Fixed-term contract: These policies are typically issued for a term of one year. At the end of the year, the insurer may review the policy based on claims and adjust the terms or premiums. This means your coverage and costs may change each year.
• Risk of cancellation: There is always a risk that the insurance policy will be cancelled if the insurer or group decides to withdraw it. In this case, you could be left without cover and offered another retail insurance policy, potentially more expensive and with different terms.
• Lack of control: Since the terms of a group plan are negotiated by the group owner (like the bank or app), you have no say in the details of the policy. If the group decides to cut costs, you could end up with reduced benefits or higher premiums, which may not meet your needs.

In summary, while group plans may seem like an attractive option due to their lower cost, it is important to be aware of their limitations and risks. Make sure you understand all the implications before signing up for a plan.

I heard that health insurance companies cannot reject a claim if the insured continues to pay the premium for 5 years. I believe this is called a moratorium period. Why do claims keep getting rejected?

The moratorium period for health insurance policies in India, which was reduced to 60 months in April 2024, plays a crucial role in the acceptance of applications. During this period, insurers cannot deny an application on the basis of undisclosed or incorrect information, except in cases where fraud is proven. This means that insurers can still deny an application if they can prove fraud.

What constitutes fraud? Under the Indian Contract Act, 1872, fraud is defined as any act intended to deceive or induce any person to enter into a contract. This includes:

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

Essentially, fraud is the act of intentionally deceiving someone for personal gain.

Therefore, for an insurer to reject a claim after the moratorium period, it will have to provide documentary evidence proving:

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

If an insurer rejects your fraud claim after the 60-month moratorium period, you may have to challenge their decision in court. In addition, the insurer will have to prove their fraud allegations with solid evidence.

—Aayush Dubey is Co-Founder and Research Director of Beshak.org