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A no-claims bonus is offered to the policyholder as a reward for making no claims during a premium-paying period of the policy. A few insurers offer the bonus as additions to the sum assured; in most cases, however, the bonus takes the form of a discount on the annual premium. Although the offers differ across insurers and policies, in the former, the sum insured increases to the extent of prescribed percentage limits—10 percent, 20 percent, and so on, up to as much as 50 percent in the fifth year. In the latter case, policyholders usually receive a five percent discount on the premium per claim-free year. This discount amount can increase to up to 50 percent if no claim is made over a 10-year period. Thus, you can see why the no-claims bonus is frequently referred to as a cumulative bonus.
The bonus is a reward for low-risk customers.
Why do insurers offer the no-claims bonus to policyholders who make no claims during a given period? They do so because such policyholders represent lower risk for the insurer. The insurer generates more profit if the policyholder does not claim against his/her policy. The insurer then rewards this profitable customer by offering the bonus. This bonus does two things: (1) the possibility of a discount or of an increase to the sum assured at no extra cost appeals to the customer and buys his/her loyalty, and (2) it encourages him/her not to claim for smaller and more manageable expenses.
What happens if you file a claim?
Previously, filing a claim usually meant that your entire accrued bonus was wiped out. But the IRDA has recently issued guidelines seeking standardization in the no-claims bonus. Insurers are now required to explain in their policy documents exactly how the bonus works. Moreover, the IRDA recommends that claims should not erase the bonus entirely, but that it should rolled back year on year just as it was granted in the first place.
Is it worthwhile to claim against your health plan?
To claim or not to claim—this is where it all becomes murky. The concept of no-claims bonus is used successfully in the field of auto insurance, but involves some pitfalls in the area of health. For instance, you might decide not to repair a dent on your vehicle because you do not want to risk your bonus. This would not harm anybody. But choosing not to treat a nagging fever for fear of losing your bonus should not even be an option.
Clearly, a no-claims bonus is a good thing: you are either paying less for the same sum assured or paying the same amount for a higher sum assured. In both cases, you are getting more than your money’s worth. But in order to maintain the no-claims bonus, you need to avoid making claims, which defeats the purpose of health insurance. At this point, evaluate whether the cost of maintaining the bonus exceeds the cost of paying for your medicals on your own. If maintaining the bonus is cheaper than paying out of your own pocket, then not making claims is a good idea; however, if the reverse is true, it becomes worthwhile to submit a claim.
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