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Cumulative Bonus in Health Insurance Explained

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Did you know your insurer may reward you for staying claim-free in a policy year? Many insurance companies give extra coverage when you stay claim-free. With rising medical costs, this bonus is helpful because it increases your sum insured at no cost and provides better protection against unexpected medical expenses.

The bonus increases up to a maximum of 200% of your sum insured. This means that if you accumulate 5% of cumulative bonus in the coming years, your coverage will keep increasing, helping you maintain higher coverage 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 a sum insured of Rs. 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 5% so his total sum insured for next year will be Rs. 5,25,000. He can now make a 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 the 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 lakhs 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 set the bonus to 0, and your sum insured may revert 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 provides coverage 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 under 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 see what method your insurer uses to apply a cumulative bonus on your plans if you have not made any claims.

Factors Affecting Cumulative Bonus in Health Insurance

The following are the key factors that affect the cumulative bonus in health insurance:

1. Your claim history:

Your cumulative bonus mostly depends on whether you filed a claim during the policy year. If you don’t make any claims, your bonus increases each year. However, if you make a claim, the bonus may be reduced or go back to zero. Some plans let you keep part of the bonus even after a claim, but this depends on your policy rules.

2. Renewing your policy on time:

If you don’t renew your health insurance on time, you might lose the bonus you have earned. Most insurers give a small grace period (like 30 days), but if you miss that, too, you may lose the bonus.

3. Cumulative bonus types:

Some health insurers give a bonus that either reduces your policy premium or increases your sum insured. How claims affect it depends on the insurer’s rules.

4. Maximum bonus limit:

Some insurance companies cap the cumulative bonus at 50%-100% of your original sum insured. Once you reach this limit, you won’t get any bonus even if you don’t make any claims afterwards.

5. Health insurance portability:

If you switch to a new provider, they may not transfer your full bonus. Sometimes you get only part of it, so always check with the new insurer before making the switch.

6. Change in policy term:

Insurance companies can change bonus rules when you renew your policy. They might adjust the bonus percentage or how claims affect it, so it is important to read the policy updates carefully.

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 a 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.

Why Do You Need a Cumulative Bonus?

A cumulative bonus rewards you for staying claim-free during the year. It usually increases your health plan’s sum insured without raising your premium, giving you extra financial protection. Here’s why it is important:

◦ It encourages you to take care of your health, reducing the risk of falling sick and making a claim.

◦ It discourages small or unnecessary claims.

◦ It benefits both you and the insurer.

What is the Difference Between a Cumulative and a No Claim Bonus?

In health insurance, a cumulative bonus increases your sum insured every year you don’t make a claim. On the other hand, a no-claim bonus (NCB) gives you a discount on your renewal premium when you stay claim-free. So, a cumulative bonus gives you more coverage, while an NCB reduces your cost.

The table below shows the key differences between the two:

How to Check for the Cumulative Bonus Needed for The Health Insurance Plan?

To check your cumulative bonus, you can look at your policy document or contact your insurance provider. The bonus amount or percentage is usually listed there, along with the rules for how it applies.

1. Check the policy document:

Look for sections named cumulative bonus, no- claim bonus or similar terms. These sections will show the percentage by which your sum insured increases for each claim-free year.

2. Contact your insurance provider:

If you can’t find the details in your policy, contact your insurer by phone or email. They can explain the exact details of your cumulative bonus and how it works for your plan.

3. Understand how the bonus works:

A cumulative bonus increases your policy sum insured by a set percentage for each claim-free year. For example, if your sum insured is INR 10 lakhs and the bonus is 10%, your coverage grows by INR 1 lakh each consecutive year you don’t make a claim. However, there may be a maximum limit on how much your sum insured can increase.

4. Know the role of claim-free years:

The cumulative bonus depends on the number of consecutive claim-free years. If you make a claim, the bonus may be reduced or reset. Therefore, it is essential to understand how your policy handles claims and their impact on the bonus.

Conclusion

A cumulative bonus in health insurance rewards you for staying healthy and not making claims. The longer you stay claim-free, the higher your bonus grows. This bonus can increase your policy coverage and help ease worries during expensive treatments. Therefore, when you buy health insurance, it is important to understand how a cumulative bonus works and the types of bonuses available to make the most of your policy.

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.

4. Is there any limit on a cumulative bonus?

Yes, there is a limit to a cumulative bonus. Usually, the bonus can increase your coverage by 50% to 100% of the original sum assured, depending on your policy.

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

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