Health Insurance

No Claim Bonus In Health Insurance

No Claim Bonus In Health Insurance

Rewards are a delight, who doesn't like them? Every time you buy something, you try to find the best deals, bargains, discounts, cashback, or rewards.

Health insurance offers rewards too. Yes, you heard that right!

The purpose of health insurance is to safeguard you against hospitalisation expenses incurred due in times of a medical crisis. For your policy to remain active, you must pay premiums. And, when you file a claim, the insurer will compensate you based on the sum insured.

However, what happens if you don't file a claim for a year? If you don't make a claim, the insurance company rewards you with a No-Claim Bonus. Let's see what a No-Claim Bonus is and how it works.
 

What Is A No Claim Bonus?

The No Claim Bonus in health insurance refers to a reward given to you for every year you go without filing any claims. The insurer offers the reward because you stayed healthy throughout the policy period and didn't make any claims,
 

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How Does The No Claim Bonus work?

Your insurer may reward you with the No Claim Bonus in two different ways -

  • Enhancing The Sum Insured

    Insurance companies increase the sum insured by a certain percentage each year, such as 10% or 20% etc., depending on the NCB. However, the premiums don’t increase.

    If the NCB is 10% this year, the sum insured becomes,

    110% - next year

    120% the following year and so on.

    However, there may be a cap to the NCB. This means that even if the number of years in which you have not made a claim increases, the sum insured won’t.

    Let's Understand This Concept Better With An Example:

    Say Mehak has a Health Insurance of Rs 10 lakhs, with an NCB of 10%. The NCB is capped at 50% of the Sum Insured.

Year Claim NCB (10% per year) Sum Insured

1st year

-

10,00,000

2nd year

-

11,00,000

3rd year

1,00,000

12,00,000

4th year

100000

13,00,000

5th year

100000

14,00,000

6th year

100000

15,00,000 (Maximum limit reached)

7th year

0

15,00,000

8th year

0

15,00,000

9th year

0

15,00,000

  • Lowering Your Premium

    Your health insurance policy depends on the level of risk your insurer assumes while covering you. If you don’t file a claim, the insurer may offer you a discount on the premium as the NCB.The reduced premium has no impact on the sum insured.

    However, only a few insurers offer this option.

    Let’s have a look at Mehak’s example again. Suppose she pays a premium of Rs 20,000 per year for a Sum Insured of Rs 10 lakhs per year. For every claim-free year, the insurer offers a 10% discount on the premium.

    Discount on premium = 10% of 20,00,00 = Rs 2,000

    Consequently, if Mehak doesn't make a claim this year, the renewal premium will be reduced to Rs 18,000. Even though her premium amount has decreased, her sum insured of Rs 10 lakh remains the same.

Drawbacks Of No Claim Bonus

  • Every Claim Reduces The Sum Insured

    The NCB begins to decrease as soon as a claim is made, which results in a reduction in the Sum insured. Let's recall Mehak's example.

Year Did you file a claim? NCB (10% per year) Sum Insured

1st year

-

10,00,000

2nd year

1,00,000

11,00,000

3rd year

1,00,000

12,00,000

4th year

1,00,000

13,00,000

5th year

1,00,000

14,00,000

6th year

1,00,000

15,00,000 (Maximum limit reached)

7th year

-1,00,000

14,00,000

8th year

-1,00,000

13,00,000

9th year

-1,00,000

12,00,000

When a claim is made in the 7th and subsequent years, it is apparent that the sum insured decreases at the same rate as the NCB. It can be seen that the cycle continues in the following years too when claims are made.

  • There Is No Impact On The Benefits

    Other than the sum insured, this NCB does not affect other benefits or eligibility such as room rent etc.

    For example, the cap for a room rent is usually 1% of the Sum insured if the Sum insured is less than 5 lakhs per year.

    Let's say Abinay has a health insurance policy with a sum insured of 4 lakhs; the limit on his room rent is Rs 4000 per day. NCB for his policy is 10%, and so the Sum insured will increase by 10% every claim-free year. Though his Sum insured increases every year, the room rent will remain the same at Rs 4000.

    Now, the room-rent limit can have a significant impact on the overall bill due to the 'proportionate deductions'. A proportionate deduction is imposed when you choose a room whose tariff exceeds your policy's room-rent cap. As a result, you will have to pay a substantial sum of money out of your own pocket.

  • There Is No Effect On The Renewed Sum Insured -

    When you renew your health insurance policy and you increase or decrease your sum insured, you should be aware that -

    The No Claim Bonus will not be applied to the renewed sum insured.

    NCB will be calculated based on the previous year's policy sum insured.

    So, if Mehak has health insurance with a sum insured of Rs 10 lakhs but decides to upgrade it to Rs 20 lakhs on renewal, the No Claim Bonus will be calculated on her last year's sum insured, meaning 10 lakhs, but not on the renewal amount, which is Rs 20 Lakhs.

  • Not Applicable For Some Health Insurance Benefits

    Your health insurance will not allow you to use the accrued bonus for certain health-related benefits such as -and post-hospitalization costs (check-up fees, diagnostic test costs, etc.).

    Second medical opinions

    Maternity expenses

    Newborn baby cover

    Consultations or health check-ups

    First-year vaccinations, etc.

    Note to remember: NCB is not a fundamental part of your existing financial coverage. The bonus is just a backup that can help to protect you if you don't have enough coverage during a given year.

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Is A Higher NCB Percentage Better Than A Lower One?

  • Case 1: Anand, a 25-year-old, has a health insurance policy with a sum insured of Rs 10 Lakhs. Let’s say that his NCB is 10% every year, up to a 100% cap.
     
  • Case 2: Ajay, a 30-year-old, has taken a health insurance policy with a sum insured of Rs 10 lakh. Let’s say that his NCB is 50% every year, up to a 100% cap.

Let’s compare both the cases -

Anand’s Higher NCB Ajay’s Lower NCB

Anand’s cover will reach the maximum limit in 10 claim-free years. Even if he makes a claim, the policy will still decline at 10%. This gradual reduction can prove to be useful at a time when he needs the policy to protect him during his old age. This is due to the fact that the sum insured shall still be higher than the base amount due to the slow decrease.

Ajay’s cover will reach the maximum limit in two years. It will also reverse at the same pace, reaching the initial sum insured in two years. His medical emergencies resulted in a claim in his 44th and 45th years. In two years, his sum insured will be the original amount again.

Therefore, a No Claim Bonus that grows slowly is a better option for young people than a No Claim Bonus that grows rapidly.
 

Summing Up!

A No-Claim Bonus is definitely a helpful feature when it comes to health insurance. Ensure that you read your policy wordings thoroughly to know the NCB percentage applicable to your policy and the benefit it offers.