Should You Consider Restoration Or No Claim Bonus As A Core Part Of Your Coverage?

While health insurance is necessary, buying adequate health insurance coverage is even more critical. India, in fact, has a big problem with respect to low health insurance coverage.

So while calculating adequate health insurance coverage one should take into account two things:

That the real usage of this policy is going to be when you’re older - say 50 and above.

That it is unwise to have a low coverage, and depend on upgrades in the future, because approval of upgrades is not automatic and would depend on the age and the medical history of the family covered.

We have covered adequate coverage extensively in a separate article

Now that we have understood the importance of high coverage, there is another question that crops up. Most policies offer very high no claim bonuses, as well as advanced versions of reinstatement of coverage benefits. In this light, is there sense in taking a large coverage or should one depend on such benefits for adequate coverage? For instance, say the adequate coverage for an individual is 15 lakhs, what if this person buys a 5 lakhs plan with a no claim bonus that goes upto 100%. In this case, the cover becomes 10 lakhs in say 2-10 years time. Plus, say if this policy has a restore feature, the cover depending on terms and conditions will reinstate when exhausted to the base sum insured, adding another 5 L

So the question is Rs. 5L base + 5L of NCB + 5L of Restore = 15L of base coverage?

Let’s find out!

exclusion of health insurance plans

What Is A No Claim Bonus (NCB) In Health Insurance?

A No Claim Bonus is essentially a reward you get from the insurance company for not making a claim under your health insurance plan during a policy year.

How Does The NCB Work?

The No Claim Bonus can be rewarded in one of the following ways -

  • Sum Insured Gets Increased By A Certain %

    Depending on your NCB, the insurer will increase your sum insured by a certain percentage each year. Your premiums will not increase.

    However, even though the bonus is cumulative in nature, there is a cap. This means that even if the number of your claim-free years increases, the sum insured won’t, after a maximum limit. Most insurers allow you a No Claim Bonus of up to 100% of your sum insured. Hence, the maximum you can accrue is 2X of your base cover.

    Let's take a look at an example.

    Suppose, Jahnvi purchases a Health Insurance of Rs. 5 lakhs, with an NCB of 20%. The NCB is capped at 50% of the Sum Insured. Therefore -

Year Claims Made NCB (20% per year) Sum Insured
1st year X - 5,00,000
2nd year X 1,00,000 6,00,000
3rd year X 1,00,000 7,00,000
4th year X 1,00,000 8,00,000
5th year X 1,00,000 9,00,000
6th year X 1,00,000


(Maximum limit reached)

7th year X 0 10,00,000
8th year X 0 10,00,000
  • Premium Gets Decreased By A Certain %

    Depending on your NCB, the insurance company will decrease your premium amount by a certain % every claim-free year. Only a few insurers offer this option.

    Let’s take Jahnvi’s example again. Suppose she pays a premium of Rs. 10,000 per year for a Sum Insured of Rs. 5 lakhs. The insurer offers a 20% discount on the premium, for every claim-free year.

    Therefore, discount on premium = 20% of 10,000 = Rs. 2000

    Hence, if Jahnvi doesn't make a claim this year, her renewal premium will be reduced to Rs 8,000. But even though her premium amount has decreased, her sum insured of Rs. 5 lakhs will remain constant.

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Conditions Under NCB That Make It An Inferior Alternative To A High Base Cover

  • Every Claim Made Reduces The Sum Insured

    In most policies, if you make a claim under your policy, the sum insured will be reduced at the same rate it had increased when you didn’t make a claim.

    Let’s recall Jahnvi’s example.

Year Claims Made NCB (20% per year) Sum Insured
1st year X - 5,00,000
2nd year X 1,00,000 6,00,000
3rd year X 1,00,000 7,00,000
4th year X 1,00,000 8,00,000
5th year X 1,00,000 9,00,000
6th year X 1,00,000


(Maximum limit reached)

7th year -1,00,000 9,00,000
8th year -1,00,000 8,00,000
  • Limits Like The Room Rent Are Not Affected By NCB

    The NCB affects only the sum insured. It does not improve other benefits under your health insurance plan like the benefits, eligibility, or financial limits, such as the room rent. In the case of a higher cover base plan, the room rent limit could be different from a lower cover. For instance, there are policies which have a private room coverage for Rs. 5 lakhs sum insured, and no room rent limit for Rs. 10 lakhs coverage.

    Suppose, your policy has a room rent limit of Rs. 5000 (1% of Rs. 5 lakhs). So due to NCB, even if your sum insured increases to Rs. 10 lakhs, your room rent limit does not increase to Rs. 10,000 (1% of Rs. 10 lakhs). The room rent limit under your health insurance policy will remain constant, i.e., Rs. 5000.

    Now, coming to the second feature.

What Is Restoration Benefit In Health Insurance?

During a policy year, when your sum insured limit is exhausted, the Restoration Benefit helps refill it. This can be done either once a year or within the limitations stated in the policy terms.

How Does It Work?

If you get hospitalised during a policy year and use the health insurance sum insured, the Restoration Benefit feature gets triggered. It replenishes the sum insured by a certain percentage.

Please note that the restored sum insured can be used only during the policy year, it cannot be carried forward to the next year.

For instance, Kaustav bought a health insurance plan with a sum insured of Rs. 10 lakhs. He got diagnosed with cancer and used his entire sum insured to cover the treatment expenses. Later that year, he got hospitalised again due to diabetes related complications. He incurred a medical expense of Rs. 1 lakh. Without a Restoration Benefit in the policy, his health insurance shall not cover the second hospitalisation. But since he did have the benefit added, the succeeding hospitalisation, too, got covered, relieving him of financial strains.

Conditions Under Restoration Benefit That May Not Work When You Need Higher Coverage

  • Restoration Triggers On Full/Partial Exhaustion

  • Full Exhaustion

    In some policies, restoration benefits come into the picture only when the whole sum insured gets exhausted. It means, after your first hospitalisation, if you have some remaining sum insured under your policy, the restoration feature will not be applicable on the second claim made in the same year.

  • Partial Exhaustion

    In some plans, the restoration benefits can be availed even if some amount of sum insured gets used up. This is called partial exhaustion.

    Taking Kaustav’s example again. Suppose, he has some sum insured left under his policy after his first hospitalisation, and the restoration triggers on full exhaustion. In that case, the restoration feature will not be applicable the second time he makes the claim.

  • Non-Transferable If You Migrate Or Port Your Health Insurance Policy

    Migrating a policy means moving your policy to another policy within the same insurance company. And porting means moving your policy to another insurance company. The Restoration Benefit cannot be migrated or ported to your new policy.

  • Does Not Cover Critical Illnesses

    Some insurance companies don’t allow the Restoration Benefit for critical illnesses like cancer, kidney failure, etc. Some insurance companies may allow it only once in a lifetime for critical illnesses.

    So, if you choose a low sum insured under the impression that the Restoration Benefit will back you every time you’re hospitalised, you might face hassles, especially if you contract a critical illness.

    Make sure you choose a sufficient sum insured and go through the policy wordings thoroughly - to understand the limitations and avoid causing a dent to your savings.

  • Does Not Cover Related Illnesses

    Several insurance companies allow you to use the Restoration Benefit only for illnesses that are unrelated to what you had been hospitalised for previously.

    For instance, you get hospitalised for a diabetes-related complication. And later that year, you get hospitalised for neuropathy, associated with diabetes. So since the two illnesses are related, Restoration Benefit will not cover your second hospitalisation.

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Important: Both NCB And Restoration Benefit Can Be Withdrawn

Note, as per IRDAI product regulations, an insurer can withdraw a product anytime based on its internal product policies, and approval from internal product committees, by simply informing the regulator (IRDAI). Insurers simply need to prove that they are suffering losses on the current terms and pricing.

Hence, please note that the shiny benefits like NCB and Restoration may get withdrawn along with the product you have bought.

What does never get withdrawn is sum insured/coverage. This always remains constant across plans and insurers. Hence it is important that you lay your bet on the base sum insured for the long term, and consider restoration and NCB as what they are - simply a bonus or a withdrawable benefit.

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