10 Jun, 2021 | Health Insurance

4 things you must know about the No Claim Bonus in Health Insurance

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By Team Beshak
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We love bonuses, don’t we? When you earn a bonus for your good work in a year, you are mighty pleased! What if you could also get a bonus for staying healthy - for simply not making a health insurance claim in a year? If your health insurance plan has the feature called the ‘No Claim Bonus’ - you do! 

When you buy health insurance, it is very unlikely that you’ll make a claim every year after the purchase. And for every year you don’t make a claim, the insurer offers the ‘no claim bonus’. Aptly - this is called a No claim Bonus. This article is all about - how the No Claim Bonus works and whether it is as great as it sounds? 

If not - what’s the catch? Let’s quickly find out.

How does it work?  

There are two ways in which the insurer can reward you with the No Claim Bonus - 

  • By increasing the sum insured

Most insurers increase your sum insured by a certain % as a bonus without increasing your premiums. For example - you could have a10% per year or 20% per year No Claim Bonus - depending on your policy. If you go one year without making a claim, the sum insured becomes 110%. One more year - 120% and so on. 

There might be a cap (maximum limit) on how much bonus you can accumulate, based on the policy. For instance, certain insurers will allow you an NCB of 100% of the sum insured - which means although the No Claim Bonus accrues every year you do not claim, the maximum sum insured you can reach is twice your base sum insured. 

Suppose, Raj has a health insurance policy of INR 5 lakhs with a No Claim Bonus of 10% (cap of 50% of the sum insured. Here’s how his sum insured will increase for every claim-free year. 

YearClaim made?

No claim Bonus

(@ 10% per year)

Sum Insured
1No-5,00,000
2No50,0005,50,000 🔺
3No50,0006,00,000 🔺
4No50,0006,50,000 🔺
5No50,0007,00,000 🔺
6No50,000

7,50,000 🔺 

(Maximum NCB)

7No07,50,000 󠀭
8No07,50,000


 

  • By decreasing your premium amount

When you buy a health insurance policy, the insurer estimates the risk and then decides your premium rates. So, every year you don’t make a claim, they could also discount your premium by a certain rate as a reward. However, your policy sum insured will remain the same. 

While this is a possible type of No Claim Bonus, very few insurers prefer to give a premium discount.

Let’s assume that Raj pays a yearly premium of INR 10,000 for a sum insured of INR 5 lakhs per year. and the insurer offers a 10% discount on premium as No Claim Bonus for every claim-free year. So, if Raj doesn’t make a claim this year, he’ll pay a premium of INR 9000 next year on renewal. However, his sum insured will remain the same i.e. 5 lakhs - the decrease in premium amount will not affect the sum insured.

What’s the catch?

Just like everything that glitters is not gold the NCB, too, is not all gold. It does have some drawbacks - and these are important to know.

1️⃣ Sum insured will reduce at the same rate, when you make a claim in a given year.

Once you make a claim under your policy, the accumulated No Claim Bonus begins reducing at the same rate that it increased. (There is an exception for this - we’ll come to that in a bit.)

Let’s look at the same example we took above.

YearClaim made?

No claim Bonus

(@ 10% per year)

Sum Insured
1No-5,00,000
2No50,0005,50,000 🔺
3No50,0006,00,000 🔺
4No50,0006,50,000 🔺
5No50,0007,00,000 🔺
6No50,000

7,50,000 🔺 

(Maximum NCB)

7Yes-50,0007,00,000 🔻
8Yes-50,0006,50,000 🔻


 

Note: There are a few exceptions to this where bonus is accumulated for life as loyalty bonus, and does not reverse on account of future claims. For example - Max Bupa's Health Companion Plan does not reverse the no claim bonus, once you make a claim.

2️⃣ No Claim Bonus does not improve your core benefits/ eligibility

No Claim Bonus is only an additional increase of the sum insured, and it does not enhance your other benefits or eligibility like for example - the room rent limit.

For example: For lower sum insured (say, <5 Lakhs per year cover) the room rent limit is usually 1% of the policy cover. So, if Raj has taken a policy of INR 5 lakhs, his room rent limit will be INR 5000 per day. So, even though his sum insured increases by 10% every claim-free year, the room rent limit will not increase - it will remain INR 5000 only. 

Now, this room-rent limit affects the overall bill, as a result of ‘proportionate deductions’ - and hence can have a huge impact on how much you end up paying out of your pocket. 

Here’s a comparison of No Claim Bonuses offered by several popular health insurance plans in the market. 

 

No Claim Bonus / Cumulative Bonus

(% of the Basic Sum Insured, for every claim free year)

Maximum Upto

HDFC Ergo (Optima Restore)

50%

100%

Star Health (Comprehensive)

50%

100%

Max Bupa (Health Companion)

20%

100%

Max Bupa (Health ReAssure)

50%

100%

Aditya Birla (Active Assure)

10%

50%

Aditya Birla (Activ Health Platinum - Enhanced)

50%

100%

(Upto a maximum of 1 Crore)

Care Insurance (Care)

10%

50%

ICICI Lombard (Complete Health Insurance - Health Elite)

10%

50%

New India Assurance - Mediclaim Policy

25%

50%

National Insurance (Mediclaim Plus Policy)

5%

50%


 Note: Max Bupa's Health Companion Plan offers a unique advantage - it does not reverse the no claim bonus, once you make a claim.

How to approach a No claim Bonus? 

Do not consider it as a part of your base financial protection: 

As a corollary to two disadvantages listed above, it is recommended not to consider the No Claim Bonus as a part of your base health insurance coverage. Take it for what it is - a bonus - a buffer that can come in handy if your base cover falls short in any particular year. 

Similarly, do not consider this cover when you’re planning to buy a Super topup. Buy the Super Topup on the base sum insured alone.

Beshak Exclusive: Fast growing high NCB Vs. Slow growing low NCB

Should you choose a higher NCB percentage, over a lower percentage? Let’s check with an example. 

Take the case of a PLAN A where the NCB is 10% per year, until a maximum of 100%. If you bought this when you’re young - it’s very unlikely that you’ll make claims till you grow old. Even if you make multiple claims for years together - the cover will only reduce gradually at 10%, and this could be beneficial at a time when you need a cover (in your old age).

In comparison- if your NCB is 50% every year, up to say 100% limit - then your cover will reach the maximum Sum Insured in two years. But understand that it will also reverse at the same rate, reaching the base sum insured, in two years. 

If you’ve picked this policy at 30, and your Sum Insured doubles within two years. Say - you go without a claim while you’re young, and only make claims in your 40th and 41st years. Then, within these two years your Sum Insured will drop to the original base-plan, suddenly. 

See the below graphs for a visual comparison of two plans - 

Plan A - NCB = 10% per year

Plan B - NCB = 50% per year

So our take is that - for a young person, a slow-growing No Claim Bonus might be more beneficial than a larger, faster-growing NCB. 

Summing up!

While it seems like an enticing benefit, take the No Claim Bonus with a pinch of salt. Make sure you keep in mind the list of things mentioned above, and weigh in the long-term possibilities - instead of getting carried away by a seemingly higher cover. 

If you have a question related to the No Claim Bonus, you can post it on our forum and get answers from insurance experts within 6-8 hours. 


 

Key takeaways
  1. No Claim Bonus is a reward that the insurer offers for not making a claim in a particular year.
  2. Insurers either increase your sum insured by a certain % or they give you a discount on your premiums.
  3. The cumulative increase from the No Claim Bonus is capped - which means there’s a limit on the maximum bonus you can accumulate.
  4. A No Claim Bonus is only an additional cover and does not increase other policy benefits or eligibility like room rent.
  5. NCB reduces at the same rate it increases when you make a claim.
  6. For a young person, a smaller, slow-growing No Claim Bonus may be more beneficial than a bigger, faster-growing  No Claim Bonus.
  7. Do not consider the No Claim Bonus as a part of your financial cover or when you’re planning to buy a Super top-up.


 

Team Beshak
Written by,
Team Beshak, We breathe insurance :)

We are a group of young members of the Beshak community. We come together to brainstorm, write relevant and useful content for people (just like us) who want to figure insurance on their own. If you too want to share inputs/write for us - send us a "hey" to info@beshak.org

6 Comments
28 Aug, 2021
by: vijay

Royal Sundaram's NCB does not reduce in case of claims. Their offer is: 20% increaase in SI till 100%. RS in general has outstanding features, decent premiums and ranks top of standard rankings like SecureNow (atleast for individual plans) but has very poor (understatement) customer service and is served by TPAs. For some reason, this website doesn't highlight them as much as it should.

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16 Jun, 2021
by: Magical Arnav

great insight , thanks for this..

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19 Jun, 2021
by: Team Beshak

You are welcome :)



14 Jun, 2021
by: Richa Dsilva

Very informative, I believe I am aware about this concept enough to take better decisions

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19 Jun, 2021
by: Team Beshak

Super, glad to hear that. That's what Beshak is all about cheers!



12 Jun, 2021
by: Hiren Dedhia

Nice Articles. As explained in Plan B there is a claim at Age 40 & 41 but suppose again at Age 42 & 43 there is no claim, NCB will increase by 100% again( Fast Increase), Secondly if somebody purchase first time at Age 40 then 50% NCB in a year will be more beneficial. So it is either way.

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19 Jun, 2021
by: Team Beshak

Hmm. Our argument is that "you are less likely to make repeated claims when you are young" and more likely to make claims when you are older. Hence the faster increase when there are no claims may not be useful, since they will reduce fast when you really need the bonus!



12 Jun, 2021
by: Satheesh Rao

Dear Sirs, Excellent article. In some plans of Manipal Cigna health insurance, NCB is 20% and can be accumulated upto 200% of basic sum insured. Also accumulated NCB will not reduce in case of a claim. In Care health insurance, there is an add on cover called 'Care shield', which gives three types of benefits. One of the benefit is if claims in any year is less than 25% of sum insured, then accumulated NCB will not be reduced. In some group health plans , like Good Health policy by New India Assurance, in room eligibility calculations, basic sum insured + NCB is considered. This is for your kind information With regards Satheesh rao

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19 Jun, 2021
by: Team Beshak

Hello Satheesh, thank you for your compliments!
Yes, there are insurers that do not reduce the bonus when there is a claim. We've mentioned one of these in the above article too.
The premium for Care shield needs to be evaluated before you take such a decision, sometimes you may be able to get a higher cover itself in the premium charged by such Shield add-ons.
Thank you for the input on the Good health policy - we will get it checked.



12 Jun, 2021
by: Dipesh Bablani

Very well explained

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19 Jun, 2021
by: Team Beshak

Thank you, Dipesh!


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