Why are health plans sold by Paytm and PhonePe cheaper?

Why are health insurance policies sold by banks or companies like Paytm and PhonePe so much cheaper? How do these plans work? Are there any potential drawbacks that we should be aware of?

—Name withheld on 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 users of KYC-approved apps.

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

• Coverage linked 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 that your insurance is closely tied to your continued membership in the group.
• Fixed-term contract: These policies are usually issued for a one-year period. At the end of the year, the insurer may review the policy based on claims experience and adjust the terms or premiums. This means your coverage and costs could change annually.
• Cancellation risk: There is always a risk that the policy will be cancelled if the insurer or group decides to withdraw it. In such cases, you may be left without coverage and 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 details of the policy. If the group decides to cut costs, you may find yourself with reduced benefits or higher premiums, which may not be suitable for 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 committing to a plan.

I have heard that health insurance companies cannot deny a claim if the insured continues to pay the premium for 5 years. I think it is called the moratorium period. Why do claims keep getting denied?

The moratorium period for health insurance policies in India, which was reduced to 60 months in April 2024, plays a crucial role in accepting claims. During this period, insurers cannot reject a claim based on non-disclosure or incorrect information, except in cases where fraud is proven. That is, insurers can still reject a claim 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 someone into entering into a contract. This includes:

• Making a false statement as if it were a fact
• Concealing a material fact known to the party
• Making a promise without intending to keep it
• Any other deceptive act intended to obtain personal benefit.

At its core, fraud involves intentionally deceiving someone for personal gain.

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

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

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

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