What does no claim bonus mean?

Insurance policies, be it health or motor insurance offer a no-claim bonus at the time of renewal of insurance policy for the subsequent year if no claim had been made in the current year. Most of us are aware of the concept of no-claim bonus in motor insurance, in which a discount is offered on premium as no claim bonus.

In similar fashion, most of the health insurance policies also offer a no claim bonus. But unlike motor insurance, in health insurance, the bonus is not a discount on renewal premium, rather the sum insured or cover for the policy increases by fixed amount for every year in which there has not been any claim. Bonus added every year on the sum insured is known as cumulative bonus. There is usually an upper limit on the total bonus or cumulative bonus amount which can be accrued.

Why is it important?

Cumulative Bonus is a way to reward the insured for not making a claim in the policy year. The amount by which the sum insured would increase for every year without claim and the upper limit for cumulative bonus is mentioned in the policy details. The amount/percentage by which the Sum Insured would increase every year is known as No Claim Bonus and the total maximum amount is known as Cumulative Bonus.

Let’s understand this with an example. Suppose you have a policy with 10 Lac Base Sum Insured. The yearly No Claim Bonus is 50% and total cumulative Bonus is 100%. Your total sum insured would be as follows (assuming you have not made any claim in any of these years)

Year	Base Sum Insured	No Claim Bonus	Total Sum Insured
1	10 Lac	0	10 Lac
2	10 Lac	5 Lac	15 Lac
3	10 Lac	10 Lac	20 Lac
4	10 Lac	10 Lac	20 Lac

Important points to remember regarding no claim bonus:

1. The Bonus is also deducted from Total Sum Insured in case of a claim. If a claim is approved in a year, then in next year Sum Insured would decrease by the No Claim Bonus amount of this year.
2. For every year a claim is approved the Total Sum Insured would get decreased, but it won’t ever go below the initial Base Sum Insured. In the above example if you make a claim in Year 3, your Total Sum Insured for next year (Year 4) would be 15 Lac. If you again make a claim in Year 4, the total sum insured for Year 5 would be 10 Lac.

You can refer the below example table to understand how Total Sum Insured would change due to claims or claim free years. Remember Total Sum Insured for this year will depend on any claims approved in the last year, which means any claim in a year impacts Total Sum Insured for next year.

Year	Claim in the year	Base Sum Insured	No Claim Bonus for next year	Total Sum Insured this year
1	No	10 Lac	+ 5 Lac	10 Lac
2	No	10 Lac	+5 Lac	15 Lac
3	No	10 Lac	0	20 Lac
4	Yes	10 Lac	-5 Lac	20 Lac
5	No	10 Lac	+ 5 Lac	15 Lac
6	Yes	10 Lac	-5 Lac	20 Lac
7	Yes	10 Lac	-5 Lac	15 Lac
8	Yes	10 Lac	0	10 Lac
9	No	10 Lac	+ 5 Lac	10 Lac
10	No	10 Lac	+ 5 Lac	15 Lac