Imagine you or a family member gets hospitalised. The disease for which you have been diagnosed is covered under your policy; you should also get this double-checked with the insurer. Your room rent limit is INR 10,000, and you take an INR 8,000 bed. Your overall policy coverage is INR 20 lakhs, and your final bill is INR 15 lakhs. You surely feel you would get the entire INR 15 lakhs coverage, less maybe a few thousand deducted, but ultimately, to your shock, only INR 12 lakhs is approved.
About the author: Jay Sheth, SEBI Registered Investment Adviser and a member of Fee-only India, a group of fixed-fee-only advisors. He can be contacted via his website shwealth.in.
What just happened? You had all bases covered, but still, why was INR 3 lakhs not given by the insurer? This is due to a hidden and powerful clause buried in every insurer’s policy:
“Expenses exceeding the reasonable and customary charges for the locality will not be payable.”
This is called the Reasonable and Customary (R&C) clause — and it can quietly reduce your claim payout, even when everything else seems in order.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
What Exactly Is the R&C Clause?
The R&C clause allows insurers to limit reimbursement to what they believe is the average market cost for a given treatment in that city or region.
For instance:
- If the usual cost for a cataract surgery in Mumbai is ₹35,000,
- But your hospital charges ₹65,000,
- The insurer may cap reimbursement to ₹35,000 + room rent proportion — citing the R&C clause.
Why the Clause Exists
In principle, the clause protects insurers (and indirectly, policyholders) from hospital overcharging. However, “reasonable” is not clearly defined anywhere in the Insurance Regulatory and Development Authority of India (IRDAI) guidelines. Each insurer maintains its own internal database of average costs, which is neither public nor consistent across companies. However, insurers are not always wrong in applying this clause or else hospitals would make merry by getting Clients who have \insurance coverage and overcharging them.
Why This Happens More Often in Metro Cities
Hospitals in cities like Mumbai, Delhi, and Bengaluru often:
- Charge higher rates due to location and overhead costs.
- Bundle consumables or procedure packages differently.
- Bill premium room types that automatically increase surgery costs (since surgeon/OT charges scale with room rent).
- The top 3-5 doctors of each branch of medicine charge exorbitant rates
So, even a fully covered procedure can trigger R&C deductions because the insurer’s benchmark may still be based on “average” mid-tier hospital rates, not the premium ones where many urban families actually go.
How can a client protect himself against this clause
- Take an estimate beforehand from the hospital of your choice. Take quotes from competing hospitals. If one hospital has a very high estimate compared to others, be prepared to be hit by the R&C clause
- Choice of health insurer is critical
- If billing is very high compared to the actual standard, expect every insurer to make a haircut to the claim. However, there are a few insurers who use R&C at every opportunity and others who are very liberal to it.
- Cost of Procedure / Hospitalisation: The larger the bill, the more painful it is for the insurer to make the payout and the more opportunities they would look at cutting corners. There are insurers whose claim settlement ratios vary with the size of the invoice, whereas some insurers have consistent ratios across the size of the invoice
Conclusion
The R&C clause sits in a grey zone: it isn’t illegal, and it helps prevent systemic cost inflation — but it also puts the burden of due diligence on the insured.
Unfortunately, few customers even know such a clause exists until their first claim deduction.
R&C deductions are invisible until the day of billing — and by then, it’s too late.
Before selecting an insurer or hospital, understand how R&C limits could affect you.
Even if you cannot eliminate the clause entirely, you can minimise its bite through careful planning, policy choice, and transparent disclosure.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
Use our Robo-advisory Tool to create a complete financial plan! More than 3,000 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
🔥Join our community of 9000+ users! 🔥Avail massive discounts on our courses + freefincal investor circle!
Track your mutual funds and stock investments with our Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds, ETF screeners, as well as momentum and low-volatility stock screeners.
You can follow our articles on Google News
We have over 1,000 videos on YouTube!
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.
About The Author
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development.
Connect with him via Twitter(X) LinkedIn YouTube
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
Our book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
Your Ultimate Guide to Travel
