What is Cumulative Bonus in Health Insurance and Why You Should Know About It

Health insurance is one of the most crucial investments for yourself and your family. It shields you from the financial burden of unexpected medical expenses and gives you peace of mind. But, you might not be familiar with the fact that health insurance can also offer incentives for maintaining good health. 
 

A feature in mediclaim insurance named cumulative bonus can raise your coverage or lower your premium if you do not make any claims in a policy year. 
 

Let us understand more about the cumulative bonus² in health insurance meaning and its relevance for you.

Cumulative Bonus Health Insurance Meaning

Cumulative Bonus, also called No Claim Bonus, is a benefit that most health insurance plans offer their policyholders for remaining claim-free over a certain period. The usual offerings are either an increase in the sum insured or a discount on the policy premium in the forthcoming policy year. Both of these are subject to an upper limit.

How Does Cumulative Bonus Work in Health Insurance?

Let us take an example to understand both aspects of cumulative bonuses.
 

Suppose you possess a health insurance policy with coverage of ₹5 lakhs, accompanied by a cumulative bonus feature that adds 10% of the insured sum for each year without claims, up to a maximum of 50%. Should you refrain from making any claims in the initial year, your coverage will rise by ₹50,000 in the following year, increasing it to ₹5.5 lakhs. Similarly, if you do not file a claim for five continuous years, your coverage will reach its upper limit of ₹7.5 lakhs.
 

Alternatively, few plans offer a premium discount rather than raising the sum insured. Suppose your insurance policy costs ₹10,000 per year, and your insurer provides a 5% discount for every claim-free year up to 25%. You did not submit any claim in the first year. In this case, when you renew your plan in the next year, your premium will reduce by ₹500, costing you ₹9,500. If you continue to be claim-free for five years, your premium will decrease by ₹2,500 in the sixth year, making it ₹7,500.

What Happens if You Make a Claim After Receiving One or More Cumulative Bonuses?

If you make a claim after receiving one or more cumulative bonuses, you will lose the benefit you received from the previous year's cumulative bonus in the mediclaim policy. The loss will be at the same rate as the benefit. 
 

For example, if your plan offers a 10% increase in the sum insured amount for each claim-free year and you have accumulated a 30% increase over three years, then if you claim in the fourth year, your sum insured will reduce by 10% in the fifth year.
 

However, some plans may have a provision to protect your Cumulative Bonus partially or entirely, even if you make a claim. This is called Cumulative Bonus Protector. 

What Is the Role of a Cumulative Bonus in Health Insurance?

Cumulative bonus has a significant role in the lives of policyholders. Here is the breakdown of the same.
 

• It encourages people to take good care of their health and avoid unnecessary medical expenses.

• It serves as a financial cushion in case of major medical expenses.

• You can channelise the amount saved on the premium into an investment scheme to generate decent returns.

Key Clauses Related to Cumulative Bonus in Health Insurance Policies

You must read the policy document carefully and understand the terms and conditions before buying a health insurance plan.
 

• This bonus usually applies only to indemnity-based health insurance plans, not fixed-benefit medical policies.

• Cumulative bonus is subject to a maximum limit, which varies from 10% to 100% of the sum insured, depending on the insurer and the plan.

• This bonus is transferable to another insurer if you switch the policy. However, this feature comes with several terms and conditions.

• Cumulative bonus is reduced or forfeited if you make a claim in a policy year. The reduction or forfeiture rate is equal to the increment rate of this bonus.

• With a few insurers, you may not utilise the increased sum insured through a cumulative bonus for some specific diseases or treatments, such as maternity, dental, or cosmetic procedures.

Difference Between Cumulative Bonus and No-Claim Bonus

If you are familiar with insurance jargon, you may have heard the term “no-claim bonus” mentioned multiple times in motor insurance. You receive the reward for driving carefully and not filing any claims during the policy year. This NCB then helps in lowering the premium.
 

However, in health insurance, “no claim bonus” is simply another term for a cumulative bonus. When you do not file any claims during the policy tenure, you can either lower your premium or increase the sum insured amount at the time of renewal.

Conclusion

A cumulative bonus in a mediclaim policy is a great way to increase your health coverage without paying any extra premium. It encourages you to remain healthy and avoid unnecessary claims, which can benefit your overall well-being and finances. 
 

However, you must be careful when choosing a policy offering cumulative bonuses. Different plans have distinct terms and conditions regarding cumulative rewards' percentage, type, period, and impact. It is advisable to evaluate several policies and select the one that provides the most cost-effective solution while aligning with your specific needs and preferences. 
 

And, along with a health insurance plan for medical expenses, add a life insurance plan to your portfolio for complete, all-round protection.