Failure of Health Insurance

Top 10 Reasons Behind Failure of Health Insurance Policies

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Health insurance should compensate for the expenses incurred on medical treatment in a hospital. The purpose of health insurance is to prevent financial losses in a medical emergency. However, the health insurance policy may fail to provide benefits when needed despite paying the premium.

Failure of health insurance can be in the form of inadequate coverage of the medical expenses forcing the insured to spend from his/her resources, or rejection of the claim by the insurer. The fault may lie with the insurer or the policyholder or in the process of buying the policy. 

10 Most Common Reasons for Failure of Health Insurance Policies

Lack of Awareness

Lack of knowledge of health insurance plans and the options available to the customers is a major reason for the failure of health insurance. People often purchase their first insurance plan without going into its details. The policy’s fine print is not read, thereby ignoring the coverage benefits provided by the policy, terms, and conditions, and other features of the policy. 

For instance, if the waiting period for pre-existing diseases in a health insurance policy is 2 years, but the insured is not aware of it and raises a claim for the treatment of a pre-existing disease before the expiry of the 2 years, then the claim is rejected. 

Thus, it is necessary to fully know the health insurance plan you are purchasing to know the kind of plan you are investing in.

Tax Purposes

Viewing health insurance as merely an instrument to save tax is another reason for the failure of health insurance. Since the focus is on tax savings only, people often consider only the premium amounts required to save tax when purchasing health insurance plans. The medical coverage provided by health insurance plans is ignored in favor of premiums to save on tax.

For example, a person may purchase a health insurance policy that provides good tax savings but does not include important benefits such as coverage for pre-existing diseases, critical illness cover, pre and post-hospitalization expenses, and more. Such a policy might fail to compensate adequately for the expenses in case of a serious medical condition.

Medical Cover

In times of rising medical inflation, not enough coverage for medical expenses result in the failure of health insurance. The sum insured may not be enough to meet the policyholder’s needs. For example, if the sum insured by a policy is Rs. 3 lakhs and the policyholder incurs an expense of Rs. 5 lakhs for medical treatment, he/she would suffer a loss of Rs. 2 lakhs despite having health insurance coverage.

Low Premiums

People tend to opt for health insurance policies having low premiums to save money. Such policies can carry low sub-limits on room rent or certain medical procedures, exclude pre-existing diseases, or may not cover pre and post-hospitalization expenses. What is often ignored is that health insurance policies having low premiums do not provide a plethora of coverage benefits. 

Thus, even if the policyholder saves money on the premium, he/she can suffer financial losses in the event of a medical emergency.

Terms and Conditions

Ignoring the terms and conditions is another common reason for the failure of health insurance. Without knowing the terms and conditions of the health insurance policy, the policyholder is highly likely to make mistakes when raising a claim. For instance, the policyholder can claim the room rent for a higher-priced room in a hospital than the sub-limit imposed by the policy simply because he/she is not aware of the sub-limit.

Insufficient Cover

The coverage must suit the specific requirements of the policyholder. Simply purchasing a policy without determining whether or not the coverage provided by it per your needs is a mistake. For instance, if you are suffering from any pre-existing disease, you need a policy covering pre-existing diseases with a minimum waiting period.

Bad Choice in A Hurry

People often buy the wrong policies in haste, whether under the influence of the insurance agent or lack of interest in knowing the details. There are multiple types of health insurance plans with various benefits and features. However, not going through the various plans and purchasing a policy in haste results in the failure of health insurance.

Buying without Comparing

Lack of research about the various health insurance plans before purchasing a policy is another common reason for the failure of health insurance. Various insurers’ details of all kinds of health insurance plans are available on the internet. Despite this facility, people tend to forgo research and believe whatever the insurance agents tell them. Thus, they end up with policies not suitable for them.

The correct method determines your specific requirements and looks for health insurance plans fulfilling them. After that, compare such policies by different insurers to figure out the best deal for you as per your needs and budget. 

Improper Documents

Health insurance coverage is provided based on age, occupation, income, pre-existing diseases or major ailments, current insurance plans, and any other detail sought by the insurance company. When filing the claim, the policyholder is required to submit documents attesting to the details given in the proposal form, along with the required documents proving that the policyholder has undergone treatment in a hospital. 

If the documents are not in order, the claim will be rejected. Thus, the policyholder must be able to furnish the correct documents for raising a claim.

Agent Bias

Agent bias toward his/her commission rather than the customer’s requirements is also a reason for the failure of health insurance. An agent may try to sell a policy that fetches more commission rather than meeting the customer’s needs. Thus, blindly trusting an insurance agent is a mistake.


It is essential to be wary of the above-mentioned reasons to prevent the failure of health insurance. The focus should be on purchasing the best policy to fulfill your needs in a medical emergency.


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