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The Sub-Limit Trap: How Your ₹10 Lakh Policy Might Only Pay ₹50,000 for a Knee Replacement

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You’ve secured a health insurance policy with a ₹10 lakh sum insured, believing you've built a financial fortress around your family's health. You pay your premiums on time, confident in this safety net. Then, a doctor recommends a knee replacement for an elderly parent. The estimated cost at a good city hospital is ₹3.5 lakhs—a significant amount, but well within your policy limit.

You initiate the cashless claim, only to receive a staggering blow from your insurer: they will only approve ₹50,000. The remaining ₹3 lakhs must come from your pocket.

This scenario isn't a hypothetical nightmare; it's the harsh reality for countless policyholders who fall into the sub-limit trap. It’s the fine print in your policy that can render your high-value cover tragically inadequate, a fact often upheld in the very consumer courts designed to protect you.

What is a Sub-Limit and Why is it Legally Binding?

A sub-limit is a cap placed by an insurer on a specific expense within your total sum insured. Think of your ₹10 lakh cover as your total bank balance, but the sub-limit is a strict daily withdrawal limit for specific transactions. While the total funds are there, the contract legally restricts how much you can use for certain treatments.

These caps are commonly applied to:

  • Hospital Room Rent: Often capped at 1% of the sum insured per day.
  • Specific Procedures: Including cataract surgery, hernia repair, and knee replacements.
  • ICU Charges: Typically limited to 2% of the sum insured per day.
  • Modern Treatments: Such as robotic surgeries, which can have separate, lower limits.

Because these limits are part of the policy contract you agree to at the time of purchase, they are legally enforceable. Consumer courts often rule in favor of the insurer if the sub-limit clause is clearly stated in the policy document, treating it as a mutually agreed-upon term.



A Real-World Legal Battle: The Case of Mr. Purshotam Murarka

To understand how these disputes unfold, consider the case of Mr. Purshotam Murarka vs The New India Assurance Co. Ltd., which was heard by the Delhi State Consumer Disputes Redressal Commission.

Mr. Murarka was hospitalized for pneumonia and submitted a claim against his policy. His insurer, New India Assurance, partially denied the claim based on a crucial sub-limit: the policy capped room rent at 1% of the sum insured per day, which amounted to just ₹2,000. The hospital he chose had a higher room rent. Consequently, the insurer only paid the capped amount and also disputed the length of his hospital stay, leaving Mr. Murarka with a significant out-of-pocket expense.

The District Commission initially dismissed his complaint. However, the State Commission later restored the case, not because the sub-limit itself was illegal, but to properly adjudicate whether the insurer's overall handling of the claim amounted to a "deficiency in service".

This case provides a vital lesson: The sub-limit clause itself is a powerful legal defense for the insurer. The battle for the consumer often shifts from contesting the clause to proving that the insurer's application of it was unfair or that their service was deficient.

The Deadly Ripple Effect: Proportionate Deduction

The most financially devastating aspect of sub-limits, especially on room rent, is the "proportionate deduction" clause. The Murarka case highlights this perfectly. When a policyholder chooses a room with a rent higher than the sub-limit, the insurer doesn't just refuse to pay the difference. Instead, it reduces its contribution to the entire hospital bill by the same proportion.

Example:

  • Policy Room Rent Limit: ₹5,000/day
  • Actual Room Rent Chosen: ₹8,000/day
  • Total Bill (excluding room rent): ₹3,00,000

You exceeded your room rent limit by 37.5%. The insurer will now only pay 62.5% of all associated costs.

Insurer Pays: ₹1,87,500
Your Out-of-Pocket Cost: ₹1,12,500 (plus room rent).

A small choice about a hospital room can cost you lakhs due to proportionate deduction. This is legally permitted if written in the policy.



Your Legal and Financial Defense Strategy

  • Become a Policy Detective: Read the full document and search for "sub-limit," "capping," "proportionate," and "limit."
  • Invest in a No Sub-Limit Policy: Opt for modern policies without room rent or procedure caps.
  • Audit Your Existing Plan: Review your current plan; if it has heavy sub-limits, consider alternatives.
  • Use Your Right to Port: IRDAI allows policy porting at renewal while keeping waiting period benefits intact.

In health insurance, the headline sum insured can be dangerously misleading. As legal cases like Mr. Murarka's show, the fine print is where the real battle is won or lost. By understanding and avoiding the sub-limit trap, you ensure your policy is a true shield, not a contract full of holes.

The information shared is for educational purposes only. Please consult your insurance advisor for personalized advice.


Stay insured, stay secure. 💙

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