Imagine buying a dream house, only to discover hidden structural damage the seller concealed with quick cosmetic fixes. This scenario, involving a Mr. Sharma in Bengaluru who faced legal action for hiding seepage issues from buyers, perfectly mirrors a critical mistake many make with health insurance. The temptation to omit health details for a smoother policy purchase can backfire catastrophically when you need to make a claim.
The High Cost of the Disclosure Gap
Driven by fear of rejection or higher premiums, applicants often hide underlying conditions, past surgeries, or habits like smoking. However, insurance is a contract of utmost good faith. Just as insurers must transparently outline policy features, proposers must disclose all material health information. Failure to do so breaks this foundational principle.
The consequences are severe and multi-faceted. Firstly, the insurer can cancel the policy entirely, leaving you without cover. This cancellation record can be flagged with the Insurance Information Bureau, making you a high-risk candidate for other insurers. Secondly, and most painfully, claims can be outright denied when scrutiny reveals mismatches in your medical history. Lastly, insurers may choose to continue the policy but with revised, stricter terms like longer waiting periods or exclusions.
The Stark Reality: Medical Inflation and Claim Rejections
The financial stakes are enormous. Medical inflation in India runs at 12–15%, far outpacing general inflation. According to the Insurance Regulatory and Development Authority of India (IRDAI), a staggering 11% of insurance claims are rejected annually, with fraud and non-disclosure being primary reasons.
This has a devastating human impact, with health expenses pushing over three crore Indian families into poverty each year. Many mistakenly equate success with merely getting a policy issued. True success, however, is when every legitimate claim during the policy tenure is settled in full. The most common roadblock to this success is the non-disclosure of material information.
Only Two Paths for Medical Preparedness
Essentially, there are only two ways to prepare for lifetime medical costs:
1. Self-Insurance: This involves building a personal contingency fund. It requires constant replenishment and forces families to liquidate assets or borrow if costs exceed the fund. Accurately estimating a lifetime's medical needs is highly speculative and often impractical.
2. Health Insurance: This is the far more effective risk-management tool. With full and honest disclosure, a policy protects you up to the sum insured each year. For instance, a ₹20 lakh family floater plan resets annually, even if fully utilized in one year, providing predictable, renewable protection.
Honesty: The Real Policy for Protection
Health insurance is designed to shield families from low-probability, high-impact financial shocks. By paying manageable premiums, you transfer the risk of large, unaffordable medical bills. Premiums can be planned as part of your annual budget without derailing long-term goals.
In contrast, the absence of a valid, honest policy can be catastrophic. Just as fixing a small plumbing leak prevents major structural damage, a reliable health insurance policy—secured through transparency—safeguards a family's financial health. It ensures that a medical emergency does not erode hard-earned savings and assets. In the high-stakes realm of healthcare costs, honesty isn't just moral—it's the most financially prudent policy.
Insights contributed by Priya Sunder, director and co-founder of PeakAlpha Investments.
