Why that deluxe hospital room could cut your insurance cover by 50%

Most policyholders—and even some professionals—overlook this critical fine print, assuming it’s a minor cost difference. But that assumption can cost you lakhs.

Mint breaks down how this clause works, why it’s so dangerous, and how you can avoid financial shock.

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What is a room rent limit?

Every health insurance policy specifies the type of room it covers—like a shared ward, single room, or sometimes, simply a price cap.

Some plans don't mention a room type directly but instead set a daily spending limit. For example, your policy might say ‘room rent and ICU covered up to 1% and 2% of the sum insured (SI), respectively.’

Let's break that down:

If your policy's total coverage (sum insured) is ₹10 lakh, your daily room rent limit could be ₹10,000 (1% of SI). Your daily ICU limit could be ₹20,000 (2% of SI).

Other insurers might simply state a fixed maximum amount, like ‘up to ₹5,000’, regardless of your total sum insured.

You might think if your room limit is ₹5,000 and the hospital room costs ₹8,000, you'll just pay the ₹3,000 difference. If you stay for 5 days, you'd expect to pay an extra ₹15,000 ( ₹3,000 x 5 days).

However, this is where most people get surprised! Health insurers often don't clearly state in the policy that the room rent limit doesn't just apply to the room itself.

It also applies to many other hospital expenses that are linked to the type of room you choose. This means if your room rent is higher than your limit, a much larger portion of your bill might not be covered, not just the room rent difference.

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Why room rent limits are deadly

If your policy has a room rent limit, the proportionate deduction will not just apply on the room rent, but also on additional expenses such as doctor's visits, surgeon's fees, anaesthetist, operation theatre (OT) and nursing charges, among others.

So, if your room rent limit is ₹5,000 and the actual room cost is ₹10,000, the proportionate deduction factor will come in at 50%. All additional expenses linked to the room will get deducted by 50% when the insurance company will calculate the claim amount to be covered by the policy.

CA Mayank Gosar shared a telling case:

“An individual with a policy that covered a single private room chose a single deluxe room, unaware of the difference," he said.

The hospital bill for three days came to ₹36,000, but the insurer cleared only ₹23,400, a 35% deduction.

“This happened because the deluxe room wasn’t covered under the policy. Charges like doctor visits and nursing tend to be higher in such rooms, leading to a proportionate reduction in the entire claim amount," explained Gosar.

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Bill shock explained

To illustrate, Mint created a sample hospital bill to explain the impact of the room rent limit better.

Suppose you have a policy with a ₹5 lakh sum insured, a ₹5,000 room limit, and ₹10,000 ICU limit. You’re hospitalised for five days—three in a room costing ₹10,000/day and two in an ICU charging ₹20,000/day.

That triggers a 50% proportionate deduction (actual cost is double the policy cap). The insurer will apply this deduction on nearly all key expenses— ICU charges, room rent, nursing charges, surgeon fees, anaesthetist charges, OT charges, doctor visit charges, physiotherapy, blood transfusion, and OT equipment charges.

Only medications (in-hospital) and diagnostics (USG, X-ray, labs) are paid in full. Consumables (like gloves, syringes) are often excluded unless you’ve bought a special rider.

Result? Against a bill of ₹3.66 lakh, the insurer pays only ₹1.98 lakh, a deduction of 44%.

What if you had a policy with no cap on the room rent limit? In that case, only ₹14,000 will get deducted from ₹3.66 lakh due to permanent exclusions, such as consumables (syringes, gloves), medical attendant charges, food and diet, and registration/admin charges, but other expenses will be covered fully.

This is why you must avoid policies having room rent limits, otherwise your out of pocket expenses could be huge, irrespective of the sum insured in your health plan. Always opt for comprehensive health insurance policies without any sub-limits in the room rent.

Practical limitations

Suppose you have a policy of a base cover of say ₹10 lakh with no cap on the room rent. You get hospitalised and opt for a deluxe room. Your insurer may reject cashless approval saying you can only opt for a certain type of a room.

If you still go for deluxe, it might make some deductions. This is because they find it impractical for a ₹5 lakh or a ₹10 lakh policyholder to opt for deluxe or a suite room.

“Insurance is a service, not a luxury," said Bhaskar Nerurkar, head of health administration team, Bajaj Allianz General Insurance.

Explaining it further, Nikhil Jha, co-founder,Hercules Insurance Advisory, saidif the same people are paying from their pocket, they are unlikely to opt for a deluxe but a normal ward because the former increases the total hospitalisation cost by 50-55%.

"You buy insurance to cover the treatment cost, not for hotel-like services. From that angle, insurers are correct at taking this stance. If the base cover is high, say ₹50 lakh, one can opt for a suite, but a ₹5 lakh person doing it will not be justified," he said.

Furthermore, policyholders should be aware that choosing an expensive room can deplete their coverage much faster, especially with extended hospital stays. Therefore, it's wise to be practical when selecting a room type, even if your policy doesn't have an explicit room rent limit, to ensure your coverage lasts for your actual medical treatment.

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