What is 'no claim bonus' in health insurance and how to protect it

The no claim bonus feature in health insurance is similar to a free hit in cricket. Like the batter is rewarded for a bowler overstepping their mark in cricket, no claim bonus (NCB) is essentially a thank you from your insurer for not dipping into your health cover during a policy year.

The insurance company either a) increases your sum insured (the maximum amount your policy covers) for each claim-free year or b) reduces your renewal premium for each claim-free year.

The good and the great NCB features

The good NCBs are those where the sum insured grows 50 per cent for every claim-free year, generally capped at a 100 per cent increase. In such cases, a Rs 5 lakh policy could turn into Rs 10 lakh after just two claim-free years.

Then, there are also those NCBs where the sum insured grows 10 per cent for every claim-free year, up to a maximum of 50 per cent of the original cover. For instance, if your policy starts at Rs 5 lakh, it could increase to a maximum of Rs 7.5 lakh after five claim-free years.

However, like everything in life, NCBs also have their fair share of sugar and spice. NCBs are no different.

Also read: The illusion of children-specific products

The darker side of NCBs

1. 100 to 0 in one claim
If you make a claim, most health insurance policies will reset your NCB back to zero.

That means years of careful no-claim behaviour can vanish with a single medical expense.

2. Possibility of paying higher premium
Typically, policies offering significant NCB benefits often come with higher base premiums.

3. Small bonuses, limited value
An NCB of less than 10 per cent on the sum insured often doesn't make a meaningful difference to your coverage. In such cases, the NCB acts more as a marketing tactic than a substantial benefit.

4. Claim vs bonus trade-off
Policyholders frequently hesitate to make small claims to protect their NCB.

However, avoiding claims only makes sense if the cost of the treatment is significantly lower than the long-term benefit of retaining the bonus.

How to get the most out of your NCB

Get an NCB protector. Some insurers offer an NCB protector add-on. It ensures your accumulated bonus isn't wiped out after making a single claim.

However, various insurers call this feature by various names and charge differing premiums. Some add-ons protect the entire NCB, while others only preserve a portion, and some may apply restrictions based on the type or size of the claim.

Therefore, it is essential to compare policies thoroughly and evaluate whether the additional cost of an NCB protector is worth it.

A quick recap

The no claim bonus is a clever way for insurers to reward responsible behaviour while encouraging policyholders to avoid unnecessary claims.

For policyholders, it can provide valuable extra coverage or cost savings, but only if it aligns with their broader needs.

What you should do

Read the NCB terms and conditions, because the percentages, caps and add-on features vary significantly across insurers.

That said, at the end of the day, the best health insurance policy is one that offers i) comprehensive coverage, ii) a vast hospital network, iii) fair pricing, iv) no room and disease-wise sub-limits, v) minimum exclusions and vi) reliable claims process.

Consider the NCB a bonus, not the main attraction.

Also read: Having a life and health insurance may not be enough

This article was originally published on November 26, 2024.