What is a customary and reasonable clause in health insurance?

A reasonable and customary clause in health insurance is the condition under which a health insurer can refuse to pay your claims if they can prove that your hospital has overcharged you for a certain medical treatment.

How is the reasonable and customary clause applied?

The health insurer usually has a rate card that is associated with zone-wise cities and hospitals in those areas for average costs for listed treatments. If the treatment you avail deviates over 40 to 60% of their given rates, the insurers can reject claims filed by the insurance holder.

Why do health insurance companies apply the reasonable and customary clause?

To protect themselves from being overcharged by hospitals, health insurance providers have a reasonable and customary clause in place.

Written by Simran Kaur Vij

Published: 12 Aug 2024

Updated: 27 May 2026

4 min read

Expert Verified

IRDAI Licensed

Reasonable and Customary Clause: An Introduction

Q: Is the reasonable and customary clause in health insurance legal?

Yes, as per the IRDAI regulations, the reasonable and customary clause gives insurance providers the power to reject any claim if they can prove the medical bill has been inflated and the customer is overcharged.

Reasonable and customary charges refer to the costs related to any medical procedure or item in a specific geographical location in India. Health insurance companies include a 'reasonable and customary' clause, which states that your health insurer is liable to pay for medical procedures and treatments only if they are deemed 'reasonable and customary'.

In simple words, if the medical procedure or treatment you avail is not in line with what other healthcare providers charge in your geographical area, then the insurer will pay only what they deem reasonable and will not cover the remaining amount.

If you find this confusing, don't worry. This article aims to further expand your understanding of the reasonable and customary clause in health insurance and how it impacts your policy.

Understanding Reasonable and Customary Clause In Health Insurance

In theory, the reasonable and customary clause seems simple. Let's further understand its impact on your health insurance with an example:

Ishika purchased a health insurance plan with a sum insured of INR 8 Lakh. Later, she is diagnosed with cancer and, on her doctor's advice, needs to undergo a hysterectomy. Since Ishika had a high-value health insurance plan, she chose to undergo her surgery in a premium hospital without comparing the prices of the surgery at other hospitals in the same geographical area.

Post-surgery, her hospital bill added up to INR 1.6 Lakh. However, her health insurance plan only covered her for INR 1 Lakh. On inquiry, she was informed that according to the 'reasonable and customary' clause, the health insurer was liable to pay only INR 1 Lakh.

Reasonable and Customary Clause In India

Unfortunately, in India, there are no regulations that place an upper limit on how much a hospital can charge for a particular service or medical treatment. In theory, a hospital can charge any amount they prefer for a treatment.

To protect themselves from unreasonably high medical treatment charges, health insurance companies include the 'reasonable and customary clause'. This clause defines the maximum amount a health insurer will pay for a particular medical procedure or treatment.

Who Imposed Reasonable And Customary Clause In Health Insurance?

As per IRDAI regulations, your health insurance provider can refuse to pay a hospital bill if it exceeds reasonable limits. Health insurers calculate this by estimating the average treatment charge based on data from similar healthcare providers in the same geographical location.

How To Protect Yourself From The Reasonable and Customary Clause In Health Insurance?

Often, a legitimate claim may be denied or rejected citing the 'reasonable and customary clause' in health insurance. If your health insurance provider believes that your hospital bill is unreasonably inflated, they may refuse to pay above a certain amount.

To avoid this situation from arising, consider the following factors:

In case of planned hospitalization for any surgery or medical treatment, cross-verify the average pricing. For related expenses, depending on the room category you select, the hospital provides an estimate that you can cross-verify with hospitals of a similar standard. A difference of 10-20% is acceptable; however, if it is over 40-60%, you must re-evaluate the chosen hospital.
Opt for a good health insurance company with a strong Claim Settlement Ratio (CSR) and reputation. The higher a company's CSR, the more reliable they are for paying out claims. Check out the best health insurance companies with the highest CSR for making an informed purchase decision.
Choose a reputable hospital for your medical treatments. Be aware of hospitals that tend to overcharge patients and steer clear of them to avoid issues with the reasonable and customary clause.
Select the right insurance aggregator or agent whom you can trust for sound advice. At PolicyX, we ensure that claims filed by you are processed successfully.

In Conclusion

Simply put, the reasonable and customary clause in health insurance is a technicality that insurers may use to deny a claim. However, not all health insurance companies will reject your claim on these grounds.

To avoid claim rejections based on the reasonable and customary clause, consider reading the terms and conditions of your health insurance policy and opt for a trusted hospital. Take active steps to avoid any claim rejections. For any further information, contact our insurance experts at PolicyX.