Cumulative Bonus in Health Insurance

What is Cumulative Bonus in Health Insurance?

Cumulative Bonus is a type of reward offered by health insurance companies to policyholders for not raising any claims during the policy year. It is an indicator of your good health, as you did not need to claim your mediclaim policy for any adverse medical conditions. You can use a cumulative bonus to increase your sum insured or coverage amount without paying any additional premium.

A cumulative bonus is similar to a No Claim Bonus, where you can earn a discount on your health insurance renewal premium for not raising any claim in your previous policy year.

How Does Cumulative Bonus Work in Health Insurance?

Let us understand how cumulative bonus works in health insurance with the help of the following example:

Suppose Ram has a ₹10 lakh health insurance policy that grants a cumulative bonus of 10% of the sum insured for up to 50% for every claim-free year. If Ram does not file any claim in the 1st year of buying the policy, his base sum insured will increase by 10%, i.e. by ₹1 lakh, allowing him to raise a claim for up to ₹11 lakh. If no claim is filed in the 2nd year as well, Ram's base sum insured will increase by a total of 20%, i.e. by ₹2 lakh, thus bringing his coverage amount to ₹12 lakh.

Similarly, if Ram does not file a claim for 5 consecutive years, his base sum insured amount will increase by a maximum of 50% of the SI, i.e. by ₹5 lakh. Hence, Ram could increase his coverage amount from ₹10 lakh to ₹15 lakh with the help of the cumulative bonus.

Features of Cumulative Bonus in Health Insurance

Cumulative bonus comes with the following features:

1. Claim-free Year

   Health insurance companies provide a cumulative bonus only if no claim is raised in the previous policy year.

2. No Additional Premium

   You do not have to pay any additional premium to obtain a cumulative bonus from your insurer.

3. Percentage of the Sum Insured

   Insurance companies provide a cumulative bonus by increasing your coverage amount by a fixed percentage of your base sum insured at every claim-free year. For instance, suppose Rita has ₹20 lakh health insurance policy that offers a 10% cumulative bonus for every claim-free year. In this case, her coverage amount will increase by 10% of the sum insured, i.e. by ₹2 lakh every claim-free year.

4. Fixed Bonus Amount

   Some health insurance plans grant a cumulative bonus as a fixed bonus amount that is added to your base sum insured every claim-free year. For example, suppose your ₹15 lakh health insurance policy comes with a cumulative bonus of ₹3 lakh for up to ₹15 lakh for every claim-free year. In this case, your coverage amount will be increased by ₹3 lakh every claim-free year until your coverage amount increases to ₹30 lakh.

5. Maximum Bonus Limit

   All insurers grant cumulative bonuses for up to a maximum limit. Once you reach the maximum cumulative bonus limit, no additional bonus will be added to your sum insured. For instance, suppose your ₹10 lakh mediclaim policy offers a 20% cumulative bonus for up to 100% every claim-free year. Once your coverage amount increases by 100% of the sum insured after five consecutive claim-free years, i.e. becomes ₹20 lakh, your insurer will no longer provide any cumulative bonus even if no claims are filed.

6. Accumulates Over Time

   Cumulative bonus can be accumulated over years as it increases your coverage amount after every claim-free year. For example, suppose your insurer offers a 10% cumulative bonus for up to 50% of the sum insured on every claim-free year. In this case, your coverage amount will increase by 10% after one claim-free year and 20% after two claim-free years. Thus, you can increase your coverage amount by 50% of the sum insured after five claim-free years.

7. Granted on Renewal

   Health insurers grant cumulative bonus only on renewals and not in between the policy year.

Role of Cumulative Bonus in Health Insurance

Cumulative bonus in health insurance plays a significant role for policyholders. Take a look at them below:

• Rewards Healthy People – With the cumulative bonus, insurance companies reward you for staying healthy and not raising any claims in the policy year.
• Promotes Healthy Lifestyles – Health insurance companies can encourage you to lead a healthy lifestyle as every claim-free year increases your sum insured amount.
• Encourages Insurer Loyalty – Cumulative bonus instils a sense of loyalty for your insurance company as it incentivizes your efforts to stay healthy.
• Prepares for Medical Inflation – A cumulative bonus financially prepares you to tackle medical inflation in the future by increasing your coverage amount every claim-free year.

Benefits of Cumulative Bonus in Health Insurance

Check out the key benefits of cumulative bonus in a health insurance policy:

• Enhanced Medical Coverage Over Time – Cumulative bonus increases your coverage amount after every claim-free year, allowing you to enhance your medical coverage over time.
• Prevents Unnecessary Claims – With the cumulative bonus in place, it is logical to avoid filing frequent health insurance claims so that your sum insured increases without paying a higher premium.
• Encourages Healthy Living – Cumulative bonus encourages you to lead a healthy lifestyle to avoid getting sick so that you do not end up raising a claim.
• More Affordable – Cumulative bonus allows you to afford comprehensive medical coverage with a higher sum insured without actually paying an expensive premium.
• Safeguards Against Medical Inflation – Cumulative bonus enables you to increase your coverage amount every claim-free year, safeguarding you against future medical inflation.
• Ensures Peace of Mind – You can build your sum insured by adding your cumulative bonus every claim-free year, ensuring peace of mind in case of any unforeseen medical emergency.

What Happens to Cumulative Bonus If You File a Claim?

If you file a claim after receiving cumulative bonus on your mediclaim insurance policy, you will lose the bonus amount. This will happen because a cumulative bonus is granted as a reward for not raising a claim. The moment you raise a claim, you are no longer eligible to receive any cumulative bonus. Hence, your coverage amount will be restored to your base sum insured amount at the next renewal.

For example, suppose you have accumulated a cumulative bonus of 20% after two claim-free years on your ₹15 lakh health policy. If you raise a claim in the third year, your coverage amount will be restored to ₹15 lakh, which is your base sum amount, at the time of renewal.

Besides, some plans reduce the coverage amount at the same rate of percentage at which the cumulative bonus was granted. For instance, suppose your insurer gave you a 10% cumulative bonus after every claim-free year, and you have increased your coverage amount by 30% after three claim-free years. If you raise a claim in the 4th year, your coverage amount will reduce by 10% at renewal.

However, some health insurance plans come with riders like cumulative bonus protection cover that keeps your cumulative bonus intact even if you raise a claim in the previous policy year.

Things to Remember About Cumulative Bonus While Buying Health Insurance

Take a look at the few essential things about cumulative bonus that you must remember while buying health insurance:

• Cumulative bonus is available only under indemnity-based plans and not under benefit-based plans.
• It comes with a maximum bonus limit, after which the coverage amount is not increased even if you do not claim your mediclaim policy.
• The accumulated cumulative bonus is forfeited or reduced by the same rate of percentage upon raising a claim.
• In the case of health insurance portability, the cumulative bonus is also transferred to the new insurer or policy.

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

The major difference between a cumulative bonus and a No Claim Bonus (NCB) is that a cumulative bonus increases your coverage amount by a fixed bonus amount or percentage of the sum insured, while NCB reduces your renewal premium by the bonus percentage. Basically, the NCB impacts your premium, and the cumulative bonus impacts your sum insured.