The No Claim Bonus (NCB) is a key feature of any insurance policy and is offered as a reward to the policyholder for not making any claims in a particular policy year. Most health insurers in India provide one or the other kind of NCB to their policyholders and it is important to know how they work:
1) What are the ways in which NCB is offered to policyholders?
- Cumulative bonus – Most insurers provide NCB in the form of cumulative bonus. Suppose you have a policy of Rs. 5 Lakh and your insurer offers you a benefit like ’10% of sum insured (SI) for every non-claim year upto a maximum of 50%.’ What it means is that if you make no claim in the first year of your policy, your sum insured would increase by 10% of the base SI, at no additional cost. Your SI will become Rs. 5.5 Lakh. If you do not make a claim for another year, your SI will increase by another 10% and your total SI will become Rs. 6 Lakh. This will keep increasing until your total SI becomes 7.5 Lakh. But this cumulative effect works only in continuous years and benefits can be lost on the years you make a claim.
- Discount on premiums – The NCB can also be offered by the insurer in the form of discounts. Suppose you pay a premium of Rs. 10,000 for a cover of Rs. 5 lakh and the insurer offers you a discount of 20% for each claim free year. What it means is that when you opt to renew your policy at the end of a claim free year, your NCB will kick in and you will get a discount of Rs. 2,000 on your premium.
The NCB rates in terms of cumulative bonus and the discount on the premium rates vary from one insurer to another and are presented in the policy document. Also, in the case of family floater plans, each member under the insurance cover is entitled for a no claims bonus.
2) What happens if I change the policy or switch to another insurer?
The exact details of such changes will vary but overall, a policyholder carries the benefits they accrue to the next policy. You can move from one insurer to another or change the policy from individual to family floater, for example, and you will get to keep the benefits you have accumulated so far and transfer it to the next policy.
3) Does any claim lead to loss of accumulated bonus?
No, according to the IRDAI guidelines, the entire accumulated bonus will not be lost when a low value claim is made. For example: Suppose a person has not filed a claim for 5 years and his initial cover of Rs. 5 Lakh has increased to SI of Rs. 7.5 Lakh with accumulated bonus. On the sixth year, he files a small claim of say Rs. 25,000 (5% of original sum insured). Now, depending on the policy and the insurer, the policyholder may get their total SI reduced to say Rs. 7 Lakh instead of coming down to Rs. 5 Lakh. This benefit and the rate is completely dependent on your policy.
4) What happens if I don’t renew my policy?
Non-renewal of policy leads to the lapse of the policy and all the accumulated benefits associated with it. You would lose all the bonus or discounts in case your policy lapses.
5) How do I get additional bonus?
No claims bonus is offered by most insurers as an in-built feature as well as an add-on. For example, suppose your policy with SI 5 Lakh, increases by 10% for every claim free year, it will lead to a SI of Rs. 7.5 Lakh after 5 years. Or, you can also buy an add-on, which can be something like this: An increase of SI by 150% over 5 non-claim years. What it means is that by paying a little extra, your SI will become Rs. 12.5 Lakh (150% more) when you buy the add-on.
NCB, therefore, is an important feature of a policy that rewards policyholders for maintaining a healthy lifestyle and provides an additional layer of protection during the times they really need a lot of financial cover.
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