Cumulative Bonus in health insurance

Investing your hard-earned money in health insurance may seem like a financial burden at first, but it pays off several-fold in case of a medical emergency. But what happens if you don’t raise a claim during a policy term? Is your investment wasted that year? Fortunately not! Health insurers offer a special incentive for customers who stay healthy and don’t avail of claims. It’s called “Cumulative Bonus” (CB). Read ahead to know more about Cumulative Bonus in health insurance.

Cumulative Bonus; also known as No Claim Bonus, is a reward that insurers offer their customers for abstaining from raising claims. The usual offerings are either a discount on the policy premium or an increase in the sum insured in the forthcoming policy term. Both of these are subject to an upper limit.

As explained earlier, a Cumulative Bonus is an incentive that health insurers give their customers after the completion of a claim-free term. The usual incentive offered by health insurers is an increment in the sum insured from up to 5 to 50% of the total insured amount. The increment ends after it matches the total amount of the initial sum insured.

So, what happens if you avail a claim after receiving one or more Claim Bonuses? If you make a claim after receiving one or more Claim Bonuses, you will lose the increment you received from the previous term’s Claim Bonus. The loss will be at the same rate as the increment. So, if the increment is at 10% of the sum insured, you will lose your accumulated bonus at the same rate.

Example: Mr. Vinoth purchases a health insurance policy that insures him for a sum of Rs. 5 lakhs. And his insurer offers a Cumulative Bonus of 50% of the insured amount after the completion of every claim-free term. Then, for the first claim-free cycle, Mr. Vinoth will be eligible for an increase in the sum insured of Rs. 2.5 lakhs. Meaning, in the following cycle he will be eligible for a sum insured of Rs. 7.5 lakhs.

In the same manner, once he completes another claim-free policy cycle, he will be eligible for another increment of Rs. 2.5 lakhs. And his total sum insured will increase to Rs. 10 lakhs. Since now the total increment he has received (now Rs. 5 lakhs) matches the initial insured amount, he will not be eligible for an increase in the following cycle. And if he makes a claim, he will lose the increment gained from the previous cycle, in the forthcoming cycle.

The following are the important benefits of a Cumulative Bonus.

Usually, a Mediclaim Policy refers to an insurance plan that offers financial protection against medical emergencies. Some of the inclusions of this plan include accidents, sudden illness and surgeries, etc. A Mediclaim policy offers lesser coverage than a conventional health insurance policy. However, in the context of Cumulative Bonuses, both policies offer similar incentives.

You may have heard the term “No Claim Bonus” or “NCB” used in the context of car/bike Insurance. It is used to denote a discount offered by insurers after the completion of a claim-free term by the insured. However, in the context of health insurance, No Claim Bonus and Cumulative Bonus are used interchangeably. That being said, Cumulative Bonus is the more commonly used term.

Although the terminology is similar, the implication for the term “No Claim Bonus” is slightly different in health insurance and motor insurance. In car/bike insurance, it only refers to a discount on the policy premium offered by an insurer. However, in health insurance, it could mean either a discount on the policy premium or an increase in the sum insured. It depends on the terms and conditions of the health insurer.

The following are a few additional benefits of a Cumulative Bonus in health insurance.

Investing in health insurance gives returns whether or not you make a claim during a policy term. Health insurers reward customers who stay fit and do not raise any claims by offering them a Cumulative Bonus in the successive term. The Cumulative Bonus can either be a decrease in the policy premium or an increase in the sum insured. Either way, you will benefit. So, try to settle small medical expenses yourself and enjoy more financial protection in the future.