4 Things You Must Know About The No Claim Bonus In Health Insurance

• Introduction
• How does the No Claim Bonus work?
• What’s the catch?
• Comparison of No Claim Bonuses offered by several popular health insurance plans in the market.
• How to approach a No claim Bonus?
• Beshak Exclusive: Fast growing high NCB Vs. Slow growing low NCB

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 (also called booster benefit, loyalty benefit, cumulative bonus) works and whether it is as great as it sounds? If not - what’s the catch? 

Let’s quickly find out and also understand how the health insurance No Claim Bonus works.

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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 - the NCB percentage could be 10% per year or 20% per year - 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. 

• 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.

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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.

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. 

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

3️⃣ No Claim Bonus will not be applicable on the renewed sum insured

In case you increase or decrease your policy sum insured at the time of renewing your health insurance policy, you should know that the No Claim Bonus will not be applied on the increased or decreased amount - it will be calculated on the previous year’s sum insured. 

Meaning, if Raj has a policy of INR 5 lakhs and decides to increase it to INR 15 Lakhs on renewal - the No claim bonus will be calculated on his last year’s sum insured i.e. INR 5 Lakhs, and not on the renewed sum insured i.e. INR 15 Lakhs.

4️⃣ No Claim Bonus cannot be used for some health insurance benefits

The accrued bonus under your policy will not be available for claims made under some health insurance benefits like health check-up, second medical opinion, maternity expenses, newborn baby cover, first-year vaccination, etc.

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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.

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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. 

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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.