What's inside? 🧐
- Introduction
- How does the No Claim Bonus work?
- What’s the catch?
- Comparison of No Claim Bonuses offered by several popular health insurance plans in the market.
- How to approach a No claim Bonus?
- MyInsureBuddy Exclusive: Fast growing high NCB Vs. Slow growing low NCB
Introduction
We love bonuses, don’t we? When you earn a bonus for your good work in a year, you are mighty pleased! What if you could also get a bonus for staying healthy - for simply not making a health insurance claim in a year? If your health insurance plan has the feature called the ‘No Claim Bonus’ - you do!
When you buy health insurance, it is very unlikely that you’ll make a claim every year after the purchase. And for every year you don’t make a claim, the insurer offers the ‘no claim bonus’. Aptly - this is called a No claim Bonus.
This article is all about - how the No Claim Bonus (also called booster benefit, loyalty benefit, cumulative bonus) works and whether it is as great as it sounds? If not - what’s the catch?
Let’s quickly find out and also understand how the health insurance No Claim Bonus works.
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How does the No Claim Bonus work?
There are two ways in which the insurer can reward you with the No Claim Bonus -
- By increasing the sum insured
Most insurers increase your sum insured by a certain % as a bonus without increasing your premiums. For example - the NCB percentage could be 10% per year or 20% per year - depending on your policy. If you go one year without making a claim, the sum insured becomes 110%. One more year - 120% and so on.
There might be a cap (maximum limit) on how much bonus you can accumulate, based on the policy. For instance, certain insurers will allow you an NCB of 100% of the sum insured - which means although the No Claim Bonus accrues every year you do not claim, the maximum sum insured you can reach is twice your base sum insured.
Suppose, Raj has a health insurance policy of INR 5 lakhs with a No Claim Bonus of 10% (cap of 50% of the sum insured). Here’s how his sum insured will increase for every claim-free year.
Year | Claim made? | No claim Bonus
(@ 10% per year) | Sum Insured 1 | No | - | 5,00,000 2 | No | 50,000 | 5,50,000 🔺 3 | No | 50,000 | 6,00,000 🔺 4 | No | 50,000 | 6,50,000 🔺 5 | No | 50,000 | 7,00,000 🔺 6 | No | 50,000 | 7,50,000 🔺
(Maximum NCB) 7 | No | 0 | 7,50,000 8 | No | 0 | 7,50,000
- By decreasing your premium amount
When you buy a health insurance policy, the insurer estimates the risk and then decides your premium rates. So, every year you don’t make a claim, they could also discount your premium by a certain rate as a reward. However, your policy sum insured will remain the same.
While this is a possible type of No Claim Bonus, very few insurers prefer to give a premium discount.
Let’s assume that Raj pays a yearly premium of INR 10,000 for a sum insured of INR 5 lakhs per year. and the insurer offers a 10% discount on premium as No Claim Bonus for every claim-free year. So, if Raj doesn’t make a claim this year, he’ll pay a premium of INR 9000 next year on renewal. However, his sum insured will remain the same i.e. 5 lakhs - the decrease in premium amount will not affect the sum insured.
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What’s the catch?
Just like everything that glitters is not gold the NCB, too, is not all gold. It does have some drawbacks - and these are important to know.
1️⃣ Sum insured will reduce at the same rate, when you make a claim in a given year.
Once you make a claim under your policy, the accumulated No Claim Bonus begins reducing at the same rate that it increased. (There is an exception for this - we’ll come to that in a bit.)
Let’s look at the same example we took above.
Year | Claim made? | No claim Bonus
(@ 10% per year) | Sum Insured 1 | No | - | 5,00,000 2 | No | 50,000 | 5,50,000 🔺 3 | No | 50,000 | 6,00,000 🔺 4 | No | 50,000 | 6,50,000 🔺 5 | No | 50,000 | 7,00,000 🔺 6 | No | 50,000 | 7,50,000 🔺
(Maximum NCB) 7 | Yes | -50,000 | 7,00,000 🔻 8 | Yes | -50,000 | 6,50,000 🔻