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9 reasons why individual health insurance is a must over group policy (Pixabay)

Just like the way you get rewarded for good work at the end of the year by your employer, the insurance company rewards you No-Claim Bonus (NCB) for each claim-free year. While a bonus is always welcome, you should not fall for it when used as one of the marketing gimmicks. Here is a low-down to all you need to know about NCB before buying a policy.

What is a No Claim Bonus?

No claim bonus is a reward that policyholders can claim if they have not filed any claims through the entire policy period, which is made available in the form of either an increase in sum insured or a discount in the premium to be paid at the time of the renewal of the policy.

How much NCB does the health policy offer?

For every claim-free year, you get an additional sum insured at no extra cost. The range of no-claim bonus varies from 5% to 100% depending on the number of years of the policy. It means the maximum sum insured you can reach is twice your basic sum insured.

For example, assume you have a no claim health insurance with a sum insured Rs10 lakhs. Your insurer offers you 5% of cumulative NCB for every claim-free year with a maximum of 50%. Thus, after a 1st claim-free year the sum insured will be Rs 10.50 lakh (Rs 10 lakhs + Rs 50,000). After a 2nd claim-free year the sum insured will be Rs 11 lakh (Rs 10 lakh + Rs 1 lakh) and after a 3rd claim-free year the sum insured will be Rs 11.5 lakh (Rs. 10 lakh + Rs 1.5 lakh). If the maximum NCB limit is 50%, then the maximum sum insured available to you will be Rs 15 lakh.

Things to Know about NCB

1) Sum insured  accumulated through NCB reduces after making a claim

The sum insured increases in your health insurance policy for every claim-free year. It can go a maximum of up to 100% depending on the policy year and terms and conditions of your insurance policy. But what happens in the case of a claim? It is important to know that once you make a claim, the accumulated No Claim Bonus starts decreasing at the same rate. For example, you bought a policy of Rs 5 lakh which gives 50% NCB next year. Now assuming there was no claim next year your sum insured will be increased to Rs 10 lakh. Now if there is a claim in the third year then your sum insured will get reduced again to Rs 5 lakh. It reduces in the same ratio as it was increased. It is therefore good to go with policies that gradually increase your sum assured, as in case of claim it will accordingly get reduced and the whole amount will not get wiped out in one go.

2) Sum insured accumulated through NCB does not increase your sub-limits.

If your policy has sub-limits, then your insurer will pay only up to the specified limit of sum insured for certain expenses such as room rent and ambulance. It is usually 1 % of your sum assured. For example. If your cover is Rs 5 lakh then the insurance company will reimburse you only for Rs 5000 for room rent. Any expense above Rs 5000 has to be met out of your pocket. Besides room rent insurers also put sub-limits on pre-planned treatments such as cataract surgery, dental treatment, hernia, among others.

Now if your base sum insured is Rs 5 lakh and accumulated NCB is also Rs 5 lakh, then according to the 1% sub-limit, you will be eligible to get only Rs 5,000. The accumulated NCB will not be part of the sub-limit calculation.

Having said that always consider basic sum insured while buying top-up plans and do not include accumulated NCB amount as it can lead to unwanted surprises later.