Cumulative Bonus in Health Insurance: Benefits & Types

Posted on: May 28, 2019 | 3 mins | Written by: HDFC ERGO Team

Cumulative Bonus in Health Insurance: Benefits & Types

While reading articles written by health insurance companies or their feature offerings, you must have a come across the word ‘no claim bonus’ or ‘cumulative bonus’. Both these words mean the same. It basically conveys the benefit that an insurance company offers the insurer for making no claims in a policy year. This benefit is passed on for the renewal year in the form of increase in sum insured increase for which there is no premium hike. In a nut shell, it is a reward for staying fit and not registering any claims with your health insurance company.

Let’s get this straight, we all love bonuses. Similarly, if you get a bonus of sum insured without paying anything extra you will definitely feel elated. But this reward is offered only when you do not make any claims. The bonus keeps increasing up to maximum 200 % of your sum insured. This means that if you accumulate 5% of cumulative bonus in the coming years, your coverage will keep on increasing indirectly helping you for higher cover due to inflation.

With HDFC ERGO, there exists a concept of Enhanced Cumulative Bonus. This feature will help you increase your cumulative bonus every year. So if you are eligible for a sum insured hike of 5%, and if you opt for enhanced cumulative bonus, you will get a sum insured increase of 10%.

How it Works?

If Mr. Ram has bought a health insurance plan with sum insured 5 lacs and he did not register any claim in the first policy year, at the time of renewal he will get a cumulative bonus of 5% so his total sum insured for next year will be Rs. 5, 25, 000. He can now make claim up to this amount instead of Rs. 5 lakhs.

Similarly, in the second year if he again does not register a claim, he gets a cumulative bonus of 5% so again he gets a sum insured increase due to which his sum insured with cumulative bonus will be Rs. 5,50,000. This bonus can go up to 100% of sum insured.

Types of Cumulative Bonus in Health Insurance

The six types of cumulative bonus in health insurance are:

• Bonus as a percentage of the insured sum

This type of bonus is announced as a percentage of the sum insured. If you have not made any claims in a policy year, your insured sum will go up by a percentage for the 2nd year.

Take a look at this example. Your insured amount is Rs.5 lakhs, and your cumulative bonus is 10%. In the first year of the policy, you are fit, and have not made any claims. As a token of appreciation, the insurance company increases your insured amount by 10% for the next year. For the 2nd year, your sum insured becomes Rs.5,50,000, but your premium remains the same.

Most insurance companies follow this type of cumulative bonus, and they keep increasing the insured sum by a particular percentage at the end of every claimless year.

• Bonus as a fixed sum

A few insurance companies don’t offer bonuses as a percentage of something, but as a fixed sum. For example, they may announce a bonus of Rs.50,000 on your sum insured next year, if you complete a claim-free year. The bonus is added to your insured amount next year, in this case.

• Renewal bonus

Instead of announcing a bonus for every claim-free year, some service providers may announce a bonus percentage when you renew your policy. However, this bonus is applicable only if you have not submitted any claims throughout the policy’s previous tenure.

• Bonus that decreases when a claim is presented

This scenario can be explained through this example. Your sum insured is Rs.5 lakh for the 1st year. You didn’t make any claims during this year. The service provider announces a 10% cumulative bonus as your reward. Now, for the 2nd year, your sum insured has become Rs. 5,50,000. In the 2nd year, you make a claim. Now, for the 3rd year, some insurance companies may make the bonus 0, and your sum insured may go back to Rs.5 lakhs. However, some companies may reduce your bonus because you made a claim, and your insured sum may come to Rs. 5.25,000 from Rs.5,50,000.

• Family floater plan bonus

A family floater plan is one where coverage is provided for all members in the same plan. If no claims are made by any family member, the bonus applied to the sum insured is shared by all the members in this type of policy.

• No claims in multiple years bonus

As the name indicates, this bonus is given by insurers if you have not made any claims for multiple years. The bonus amount for claim-free multiple years is far higher than the bonus given for a single, claim-free year.

Always check the terms of your policy to what method your insurer uses to apply cumulative bonus on your plans, if you have not made any claims.

Benefits of Cumulative Bonus

The following are some of the situations where policyholders can avail the benefits of cumulative bonuses on their plans:

• The insured amount keeps increasing for every claim-free year. The number of claim-free years you have directly impacts the cumulative increase in the insured amount.

• You can keep accumulating your bonus for every claim-free year for up to 10 years, in most health insurance plans.

• The terms of the cumulative bonus (how much and how they will be applied) are mentioned in the policy document. You should read all the terms and conditions of the policy thoroughly to know these.

• Cumulative bonus can be applied only on a valid policy. Hence, you should keep tracking your policy’s tenure and apply for renewal promptly to be eligible for the benefits of the bonus.

• The rates of cumulative bonuses depend on the terms of the service providers, and they can vary. However, they usually range between 10 and 100%.

• If the cumulative bonuses for two health insurance policies overlap each other, policyholders can claim benefits on the sum insured for the same. The bonuses will not be nullified.

What is the Role of Cumulative Bonus in Health Insurance?

Here is the role of cumulative bonus in health insurance:

1. Increased coverage

When you have not made any claims for a year, you are eligible for a bonus, which increases your sum insured the next year. If you continue to maintain your no-claim streak for many years, you can increase your coverage amount considerably, thereby ensuring increased financial protection for your health-related issues.

2. Reward for no claims made

A cumulative bonus is a good way to reward a policyholder for maintaining a healthy life and not making any claims for medical expenses for a particular year.

3. Increased coverage for the same premiums

Cumulative bonuses can increase your insured amount by a considerable margin for claim-free years, but your premium payable doesn’t see an increase. You can continue to pay the same rate of premium as before, even for the increased coverage, which is an excellent benefit you can enjoy for not making any claims.

4. Motivation to remain healthy

The promise of a considerable increase in the sum insured for the same rate of premium is a good enough incentive for you to stay fit and healthy throughout the policy tenure. You are motivated to keep accumulating your bonus and get increased coverage for yourself and your dependents by staying healthy. This way, you can avoid unnecessary claims, and keep increasing your sum insured.

5. Bonus on renewal

Usually, service providers apply the cumulative bonus on the sum insured when you renew the policy at the end of its tenure. If you want a higher insured amount for your renewed policy for the same premium rates, you should avoid making any claim throughout your policy’s tenure.

How Enhanced Cumulative Bonus Works?

If Mr. Ram has bought a health insurance plan with sum insured 5 lakhs and he did not register any claim in the first policy year, at the time of renewal he will get a cumulative bonus of 10% so his total sum insured for next year will be Rs. 5, 50,000. He can now make claim up to this amount instead of Rs. 5 lakhs.

Similarly, in the second year if he again does not register a claim he gets a cumulative bonus of 20% so again he gets a sum insured increase due to which his sum insured with cumulative bonus will be Rs. 6,00,000.

Conclusion

The idea is to claim only when it is genuinely needed. Making claims at times hampers your claim history and insurance companies may increase your premium depending upon the frequency of registering the claim. If you do not make any claims, it’s an indication that you are leading a healthy lifestyle. Staying fit is the key so that you don’t end up falling sick and make claims. Your no claim bonus or cumulative bonus will keep rising to a good extent so that it covers you when you just need it the most.

FAQs

1. How can I use my cumulative bonus on my health insurance?

Your cumulative bonus will make you eligible for an increased insured sum when you renew your policy, provided you don’t make any claims during the previous tenure.

2. Am I eligible for NCB for add-on plans?

Usually, the no-claim bonus (NCB) applies only to the main health insurance plan. Add-on plans or riders you buy (such as critical illness plans or cash benefit plans) are not considered when calculating the bonus.

3. My health insurance has lapsed. What will happen to my cumulative bonus?

Sometimes, your health insurance policy may lapse when you don’t pay your premiums on time, or due to other reasons, as may be mentioned in the policy document. In such cases, you are not eligible for the cumulative bonuses you have accumulated for that term, and the benefits arising from it. Some insurance companies may give you a grace period to pay your premiums if you have missed the original deadline. If you pay your premiums within the grace period, your cumulative bonus may be reinstated for that term.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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