No Claim Bonus

What is a no claim bonus in health insurance?

A no claim bonus is a benefit that your health insurer may offer when you do not make a claim during a policy year. It rewards you for maintaining your policy without making a claim. The Insurance Regulatory and Development Authority of India (IRDAI) recognizes two forms of no claim bonus in health insurance:

• Cumulative bonus: Your insurer increases your sum insured without increasing your premium for the bonus.
• Renewal premium discount: Your insurer reduces your renewal premium according to the policy terms.

The benefits available to you depend on your health insurance policy. Not every policy offers both options, and the bonus percentage and limits can vary between plans.

How does a no claim bonus work?

A no claim bonus usually applies when you renew your health insurance policy. The insurer checks whether you meet the conditions for receiving the bonus and applies the benefit according to your policy terms.

Here is how it generally works:

1. You buy health insurance: You choose a policy with a specified sum insured and pay the premium.
2. You complete a policy year: You remain covered throughout the policy period.
3. You do not make a claim: If your policy requires a claim-free year, you must meet that condition to qualify for the bonus.
4. You renew your policy: The insurer applies the eligible bonus at renewal, based on the policy terms.
5. Your benefit changes: Your sum insured may increase, or you may receive a discount on your renewal premium.

What are the types of no claim bonus in health insurance?

Health insurance policies may offer a no claim bonus in two main forms.

1. Cumulative bonus

A cumulative bonus increases your sum insured for eligible claim-free years. It gives you additional coverage without a corresponding increase in premium for the bonus itself.

For example, suppose your health insurance policy has a base sum insured of ₹5 lakh and offers a 10% cumulative bonus for each claim-free year.

This example assumes the policy adds 10% of the base sum insured for each eligible claim-free year, with no claim-related reduction and no maximum limit reached during the period shown. The additional coverage can help you manage higher medical expenses in the future. However, the bonus does not remove other policy conditions, such as waiting periods, exclusions, or sub-limits.

2. Discount on renewal premium

Some health insurance policies offer a discount on the renewal premium instead of increasing the sum insured. For example, suppose your annual premium is ₹12,000 and your policy offers a 5% discount after an eligible claim-free year. Your discount would be ₹600, bringing the premium to ₹11,400, assuming the discount applies to the full premium. In this case, your sum insured remains the same, but you pay less at renewal. The actual discount depends on your policy. Also, the final renewal premium may change for other reasons, so a no claim bonus discount does not always mean your total renewal premium will be lower than the previous year's premium.

What are the benefits of a no claim bonus?

A no claim bonus can make your health insurance more useful over time. Its benefits depend on whether your policy offers additional coverage or a premium discount.

1. Get additional health insurance coverage

A cumulative bonus can increase your available coverage without requiring you to purchase a separate policy. For example, if your base sum insured is ₹5 lakh and you accumulate a bonus of ₹2 lakh, your total coverage may reach ₹7 lakh. This additional amount can help cover eligible medical expenses that exceed your base sum insured. The insurer will still apply the policy's terms, exclusions, and limits.

2. Manage rising medical expenses

Medical expenses can increase over time. A hospital stay or surgery that costs a certain amount today may cost more in the future. A cumulative bonus can help you build a higher level of coverage over several years. This may be useful if you want your insurance coverage to keep pace with changing healthcare costs. However, the bonus alone may not provide enough coverage for every medical situation. 

3. Save money on renewal premiums

If your policy offers a renewal premium discount, you may pay less when you renew it after an eligible claim-free year. For example, a 5% discount on a ₹12,000 premium saves you ₹600. The actual savings depend on the discount rate and the amount to which it applies. Check whether the discount applies to the full premium or only to a specific part of it.

4. Make better use of your health insurance

A no claim bonus can add value to your policy over time. With a cumulative bonus, you may get higher coverage than the original sum insured. With a premium discount, you may save money at renewal. The benefit depends on your policy and should be one of several factors you consider when choosing health insurance.

Does a no claim bonus reduce your health insurance premium?

It depends on the type of no claim bonus your policy offers. If your policy offers a cumulative bonus, your sum insured may increase while the premium for that bonus remains unchanged. This does not necessarily mean your overall renewal premium will stay the same, as other pricing factors may affect it. If your policy offers a renewal premium discount, your premium may decrease by the specified percentage.

What happens to your no claim bonus if you make a claim?

Making a health insurance claim does not automatically mean you will lose your entire no claim bonus. The outcome depends on your policy's terms.

Depending on the policy, the insurer may:

• Reduce the accumulated cumulative bonus by a specified amount.
• Remove the bonus for the relevant period.
• Continue the bonus without a reduction if the policy allows it.
• Change or remove a premium discount at renewal.

Should you avoid making a claim to protect your bonus?

Not necessarily. Health insurance is meant to help you manage eligible medical expenses. You should not avoid necessary medical care or delay a valid claim just to retain a bonus. Instead, understand how your policy treats claims and make decisions based on your medical needs and financial situation.