What is a Cumulative Bonus in Health Insurance?

How Cumulative Bonus Works in Health Insurance

While it may seem burdensome to spend hard-earned money on comprehensive medical insurance premiums, it proves invaluable during healthcare emergencies. Even if you do not raise any claims throughout the policy year, your investments do not become a complete waste. In such cases, you receive an exclusive incentive called the 'cumulative bonus'.

Understanding Cumulative Bonus in Health Insurance

Also sometimes referred to as the 'no-claim bonus,' the cumulative bonus is a special reward extended to customers who have not made any claims for one or more consecutive policy years. Typically, your insurance company rewards you with a discounted premium offer or enhances the amount of the sum insured in the upcoming policy period. Any of these initiatives upgrade the level of your health insurance plan. 

Role of Cumulative Bonus in Health Insurance Policies

As mentioned before, the cumulative bonus or no-claim bonus (NCB) serves as an incentive for specific customers who complete single or multiple claim-free terms. Usually, when the insurance company increases the sum insured, they provide an increment of 5%-25% on the total insured amount. 

Now, you may wonder what happens if you make an insurance claim after getting qualified for one or more cumulative bonuses. 

In those cases, the increment amount will be deducted from your earlier term's no-claim bonus. Thereafter, the coverage lost will be at the same rate at which the increment happened before. Thus, if your insurer provides an increment of 10% on the insured amount, your bonus will be depleted at the same rate. 

Here's a quick example to make things even clearer:

Suppose Mr Bishnoi buys a medical insurance plan with a coverage of Rs. 5 Lakhs. As per the policy, his insurer offers a 25% no-claim or cumulative bonus after he completes a single claim-free term. Thus, after the first claim-free year, he will be entitled to an extra Rs. 1.25 Lakhs medical coverage, resulting in a total sum insured amount of Rs. 6.25 Lakhs per policy term. 

Similarly, if Mr. Bishnoi completes two consecutive claim-free years, he can get another Rs. 1.25 Lakhs healthcare coverage on renewing the same plan. Subsequently, the insurance provider promised to offer him a total of Rs. 7.50 Lakhs coverage. If, at this point, he makes a claim, then he will lose the increment he earned on the previous policy period. 

Cumulative bonus helps enhance the policy's value over time. However, if a claim is made, the accumulated bonus may be reduced or lost. It's essential to understand the terms and conditions of the cumulative bonus to make the most of this benefit for better financial protection.