What is moratorium underwriting for a health insurance policy?
By Geoffrey Mann- Sep 12, 2022
A select few international insurance providers offer moratorium underwriting policies, in addition to the standard full medical underwriting versions. Moratorium policies aren’t for everyone, but they can be very useful in certain circumstances
A bit of background:
Private insurers operate on a for-profit basis, which generally means that their costs (mostly claims plus overhead expenses) must be less than the premiums they collect. This stands in stark contrast to a national insurance scheme like those found in the United Kingdom and elsewhere – these don’t necessarily need to make money.
In order to make a profit, insurers need to understand the relative health of their prospective customers. Each has a complex method of determining who is most likely to have big claims. This process is called full medical underwriting (FMU), and most policies are issued based on this analysis of the health information provided by the customer. It’s standard practice for private insurers to exclude most pre-existing medical conditions from a policy’s covered benefits. This practice of managing risk allows insurance companies to limit coverage to unforeseen accidents and illnesses, which is the underlying goal of insurance.
Some pre-existing medical conditions can be covered
Insurers almost invariably exclude from coverage chronic pre-existing medical conditions – those that are likely to linger and affect the person’s health for a long time or even indefinitely. These conditions are highly likely to recur and result in significant expenses.
On the other hand, a moratorium policy is designed to cover acute medical conditions – ones that are likely to resolve themselves and essentially go away. The coverage doesn’t start immediately – it only kicks in after two years of being covered under the policy. If during the two years, you have no symptoms, treatments, medication, etc., coverage can begin.
Here’s an example:
Sally is looking for a good international health insurance policy. She is recovering from a serious bacterial infection and had breast cancer 10 years ago.
- Her moratorium application is accepted almost immediately and she is offered a policy (which doesn’t specifically exclude any conditions).
- Her FMU application takes a few days to process, and she is offered a policy that will not cover either the infection or the cancer.
Sally opts for the moratorium policy. She undergoes three months of treatment for the infection, the cost of which is not covered under her new policy. After the three months, the infection is completely healed; she has no further treatment or symptoms.
Three years later, she contracts another bacterial infection. Her moratorium policy covers the cost of treatment because the prior infection (an acute condition) had been healed for more than the required two years.
Later that same year, she discovers a lump in her breast. Unfortunately, because the underlying condition of cancer is a chronic one, her policy doesn’t cover the cost of diagnosis or treatment.
Setting up a policy with moratorium underwriting is quick and easy. It doesn’t offer the same level of certainty about what’s covered as an FMU policy, so it’s not for everyone.
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