Health insurance works—until you hide something

Concealing health details may help secure a policy, but it can derail claims later. Why full disclosure—not approval—is the real test of a successful health insurance plan.

This is a monthly column in Mint by Priya Sunder, Director and Co-founder of PeakAlpha.

Mr. Sharma owned an enviable property in a quiet, upscale Bengaluru neighbourhood. Given its prime location and size, the house was snapped up soon after it was listed for sale by a young couple.

Shortly after the transaction, heavy monsoon rains lashed the city. Damp brown patches began spreading rapidly across the walls and ceilings, causing paint to bubble and peel. It soon became clear that the seepage was not new, but a long-standing problem that Mr. Sharma had concealed through cosmetic patch-ups just before the sale. The couple took legal recourse and recovered a sizeable amount in remediation costs from him.

This conduct mirrors how some people behave while buying health insurance.

The disclosure gap

Despite having underlying health conditions, past surgeries, or habits such as smoking or frequent alcohol consumption, many applicants hesitate to disclose these details to insurers. The fear: rejection or a higher premium.

Insurance, however, is a contract built on the principle of utmost good faith. This requires honesty from both sides. Insurers must clearly disclose features, benefits and limitations of a policy. Proposers, in turn, must disclose all material information related to health or lifestyle that could influence risk assessment.

Failure to do so can have serious consequences. Here’s what can go wrong:

Policy cancellation

Once cancelled, the insured loses medical cover altogether and may struggle to obtain insurance elsewhere. While personal details are confidential, cancellation or non-disclosure records can be shared via the Insurance Information Bureau for specific reasons. Such flags mark the applicant as high risk for other insurers.

Claim denial

During a claim, insurers scrutinize medical history to ensure consistency with declared information. Any mismatch can result in outright rejection, leaving families exposed to current and future medical expenses.

Contract revision

If the insurer chooses to continue coverage despite non-disclosure, it may impose stricter terms—longer waiting periods, additional exclusions, or significantly higher premiums.

The bigger cost

Health expenses push over three crore Indian families into poverty each year. Medical inflation runs at 12–15%, far higher than general inflation. According to the Insurance Regulatory and Development Authority of India (IRDAI), 11% of insurance claims are rejected annually, with fraud and non-disclosure among the key reasons.

Yet many applicants equate success with merely getting a policy issued. True success is when every legitimate claim during the policy tenure is settled in full—or close to it. In practice, the most common cause of claim rejection is non-disclosure of material information.

The financial impact of such rejections can be devastating.

Two ways to plan

There are only two ways to prepare for medical expenses over a lifetime.

Self-insurance

This involves building a contingency fund for healthcare. Any amount spent must be replenished. If costs exceed the fund, families may be forced to liquidate assets or borrow. Estimating lifetime medical expenses is speculative at best, and often impractical due to the sheer scale involved.

Health insurance

Buying health insurance is far more effective. With full disclosure, the policy protects individuals and families against medical expenses up to the sum insured each year. A ₹20 lakh family floater, for instance, resets annually—even if fully utilised in a single year.

Why it matters

Health insurance is a risk management tool—designed to protect against low-probability but high-impact events. By paying predictable premiums over time, families shield themselves from large, uncertain and potentially unaffordable future costs.

Premiums can be planned as part of annual household expenses without derailing long-term financial goals. In contrast, the absence of insurance can be catastrophic.

Just as a plumber fixes a small leak to prevent structural damage later, a reliable health insurance policy safeguards a family’s assets today—and ensures that large medical bills do not erode them tomorrow. Both investments are worth every drop of money.

Priya Sunder is the Director and Co-founder, PeakAlpha Investments