Claim Rejection Analysis — Common Reasons & How to Avoid Them

Three groups of reasons

A claim is rejected, or repudiated, when the insurer refuses to pay it. Rejections fall into three groups, and the group shows what the dispute is about.

The first group is policy terms: an exclusion, a waiting period or a sub-limit applies. The second is non-disclosure or misrepresentation of a material fact, such as a pre-existing disease. The third is procedure: the insurer was told late, or documents are missing.

Policy terms

An exclusion removes a treatment from the cover. Cosmetic or plastic surgery is the usual example: policies generally exclude it unless it is needed after an accident, burns or cancer, as the policy provides.

A waiting period is different, because it ends. Since 1 April 2024 the waiting period for pre-existing diseases and for specified diseases cannot exceed 36 months; older material quotes 48. Treatment of diabetes, cataract surgery and knee replacement is generally payable once the policy's waiting periods and conditions are met, and those differ by product.

A sub-limit caps the amount for an item, so it leads to part of a claim being disallowed. The policy wording sets out these terms, and a Customer Information Sheet is mandatory with every policy.

Non-disclosure and the moratorium

A person filling in a proposal form has a duty to disclose all material facts known to them, including conditions such as diabetes or hypertension, and to answer the questions fully and truthfully. Non-disclosure of a pre-existing disease is a common ground for rejection, so full disclosure at the start protects the claim later.

The moratorium limits how long this ground stays open. After 60 continuous months of cover, counting cover carried over through portability or migration, a claim cannot be contested for non-disclosure or misrepresentation unless fraud is established. The period was 96 months until it was reduced in 2024.

Procedure

Policies set time limits for intimating a hospitalisation and for submitting claim papers, and missing documents are a common cause of delay. A breach can be questioned, but where genuine incapacity prevented timely intimation an insurer is not expected to reject the claim mechanically on the time limit alone. The reason can be explained and, if the claim is still refused, raised in a complaint.

Safeguards and remedies

Under IRDAI's Master Circular on Health Insurance Business (29 May 2024) a claim cannot be repudiated without the approval of the insurer's Product Management Committee (PMC) or its Claims Review Committee. The reasons must be given in writing and must refer to the policy terms relied on.

A policyholder who disagrees complains to the insurer first; the complaint can also be registered on IRDAI's Bima Bharosa portal. If the insurer rejects it, does not reply within one month or gives an unsatisfactory reply, the Insurance Ombudsman can be approached within one year. A consumer commission is the other route.

Rules at a glance

Key points

• Rejections arise from policy terms, from non-disclosure or misrepresentation, or from procedure.
• Waiting periods for pre-existing and specified diseases are capped at 36 months and come to an end; exclusions such as cosmetic surgery do not.
• The proposer must disclose all material facts known to them, including existing conditions.
• After 60 continuous months of cover, non-disclosure cannot defeat a claim unless fraud is established.
• A repudiation needs the approval of the insurer's PMC or Claims Review Committee and written reasons tied to the policy terms.

Common misunderstandings

• The three-year rule in section 45 of the Insurance Act is a life insurance rule: health insurance has the 60-month moratorium, cut from 96 months in 2024.
• The moratorium does not switch off the policy terms: exclusions, sub-limits and co-payment still apply to a claim made after 60 months.
• A claims desk or TPA cannot repudiate a claim by itself: the approval of the insurer's PMC or Claims Review Committee is required.

Questions people ask