Why You Shouldn’t Consider NCB & Restoration Benefit As Part Of Your Base Health Cover

There are a lot of benefits you can get with your health insurance policy. Benefits like the No Claim Bonus, where the insurer rewards you for keeping yourself healthy, or the Restoration Benefit, where your sum insured is restored if you make a claim in a policy year. And while deciding how much health cover you must buy, it is normal to think about opting for features like the No Claim Bonus and the Restoration Benefit and buy a policy with a low sum insured. 

However, you should take these benefits for what they are and not consider them at all while deciding how much health insurance cover you should buy. Why? 

Let’s find out.

What Is A No Claim Bonus In Health Insurance?

Every year you don’t make a claim under your health insurance plan, the insurance company rewards you with a No Claim Bonus.

How Does A No Claim Bonus Work?

The No Claim Bonus is rewarded either -

1 - By Increasing Your Sum Insured by a Certain %

Most insurers increase your base sum insured by a certain % as a bonus without increasing your premiums. So, if a No Claim Bonus of 10% is applicable under your policy, the sum insured will increase by 10% every year you don’t make a claim. 

For instance, you have an INR 10 lakh health cover with a 10% No Claim Bonus. Your base sum insured will increase to INR 11 lakh if you don’t apply for a claim in the first year, then it will increase to INR 12 lakh if you don’t make a claim in the next year as well and so on.

However, there will be a cap on how much your sum insured can increase. Most insurance companies allow you a No Claim Bonus of up to 100% of your sum insured, meaning, although the No Claim Bonus will increase every year you do not make a claim, the maximum you can accumulate is 2X of your base cover.

Let’s say the insurer gives you a No Claim Bonus of 10% under your INR 10 lakh health plan, but the bonus is capped at 50% of the sum insured. This means that no matter how many claim-free years you have in your policy, the maximum your sum insured can increase up to is INR 15 lakhs. (10 lakh + 50% of 10 lakh).

2 - By Decreasing Your Premium by a Certain %

In this, instead of increasing your sum insured, the insurance company will decrease your premium amount by a certain % every year you don’t make a claim under your policy. Very few companies prefer to give a premium discount.

Say you pay an INR 20,000 premium every year for your INR 10 lakh cover, and the insurer agrees to give you a 10% premium discount as a No Claim Bonus reward. So, if you don’t make a claim in the first year, your premium will decrease to INR 18,000, then if you don’t apply for a claim in the next year, your premium amount will be INR 16,000, and so on. However, your sum insured will remain the same, i.e. INR 10 lakh.

Why You Shouldn’t Consider NCB as Part of Your Base Sum Insured

1 - Sum Insured Will Reduce at the Same Rate if You Make a Claim

When you make a claim under your policy, the No Claim Bonus will reduce at the same rate it had increased when you didn’t make a claim. 

So, let’s assume you did not make a claim for 5 years continuously, and your sum insured increased to INR 15 lakh. Now, if you make a claim in the sixth year, your policy sum insured will be reduced by 10% to INR 14 lakh.

2 - NCB Doesn’t Improve Room-Rent and Other Limits

The No Claim Bonus doesn’t increase or decrease other financial limits, benefits, or eligibility, such as the room rent under your health insurance policy. 

Say your policy has a room rent limit of INR 10,000 (1% of INR 10 lakh). So, even if your sum insured increased to INR 15 lakh, it doesn’t mean your room rent limit will increase to INR 15,000 (1% of INR 15 lakh). The room rent limit under your health insurance policy will remain the same, i.e. INR 10,000.

Exception: 

There are some health insurance plans where the sum insured does not reduce once it has increased, as long as you continue renewing your policy. In such a case, you can consider the No Claim Bonus as a part of your base sum insured. 

What Is Restoration Benefit In Health Insurance?

Restoration Benefit is a feature under your health insurance policy that replenishes your sum insured after being exhausted within a policy year. Different insurance companies also call it Restore, Reinstatement, Refill or Reset.

How Does the Restoration Benefit Work?

When you use your sum insured for hospitalisation in a policy year, the Restoration Benefit feature in health insurance gets triggered and refills your sum insured by a certain %. But, this expires every year - meaning once triggered, the restored sum insured cannot be carried forward to the next policy year.

Also, in some policies, it triggers only when the entire sum insured is exhausted, in others, it triggers even on partial exhaustion of the sum insured. Further, in some plans, the Restoration Benefit triggers only once a year, while some plans offer unlimited restoration. 

Why You Shouldn’t Consider the Restoration Benefit as Part of Your Base Sum Insured

1 - Non-transferrable if You Migrate or Port Your Policy 

You can’t transfer the Restoration Benefit if you decide to migrate, i.e. move your policy to another policy within the same insurance company or port, i.e. move your policy to another insurance company.

2 - Triggers on Full Exhaustion of the Sum Insured   

There are some health insurance plans in the market where restoration is triggered only if your entire sum insured is used up.  So, after your first hospitalisation, if you still have some sum insured left under your policy, the restoration feature will not apply on the second claim.

For instance, you have a base cover of INR 10 Lakhs and your first hospitalisation costs around INR 8 Lakhs. Since you still have INR 2 Lakhs left under your policy, restoration will not be triggered. Now, if you undergo a second hospitalisation that costs INR 4 Lakhs, you'll have to pay the extra amount i.e. INR 2 Lakhs out of your pocket. 

3 - Critical Illnesses Not Covered

You should be aware of this before you buy a health insurance policy with a low sum insured, believing the restoration benefit will replenish your sum insured every time you’re hospitalised. In some policies, the Restoration Benefit doesn’t get activated for critical illnesses like cancer, kidney failure, etc. And in some other policies, the Restoration Benefit gets triggered only once in a lifetime for critical illnesses.

4️ - Related Illness Not Covered

In some policies, the Restoration Benefit is restricted for ‘unrelated illness’ only. This means the restoration of the sum insured will not happen if your second hospitalisation is for an illness or a disease related to your first hospitalisation. 

Therefore, you should not consider the Restoration Benefit as part of your base cover while deciding the sum insured for your health insurance policy. Especially if you’re suffering from a chronic disease and need multiple hospitalisations in the same year, this might be a problem. 

What’s the Beshak Recommendation?

While both the No Claim Bonus and the Restoration Benefit are amazing features to have in your health insurance policy, you should take them for what they are - additional benefits. You should not consider them as part of your base cover and buy a low sum insured, thinking you’ll get the No Claim Bonus or the Restoration Benefit will restore your sum insured. 

Remember, all benefits in a health insurance policy can be removed or reversed later in specific scenarios. The No Claim Bonus can be reversed at the same rate when you make a claim under your policy. The Restoration Benefit can be removed if you decide to withdraw, migrate, or port your policy. This is why these benefits are really not a part of your core coverage. 

Your policy sum insured is the only thing that cannot be reversed or removed. Therefore, in our opinion, you should always invest in an adequate base cover first,  regardless of whether your policy offers the No Claim Bonus or the Restoration Benefit.

If you have any further questions, you can post them on the Beshak Insurance Forum and get answers from insurance experts within 6-8 hours!