Most health insurance covers come with additional benefits apart from the basic sum assured for policyholders.

Two such add-ons to the sum assured are the no claim bonus and the restoration benefit. These features can help strengthen the health cover.

But should you depend on no claim bonus and restoration benefit to substitute for an otherwise larger health insurance cover with high sum assured?

To better understand the issue at hand and make an informed decision, it is important to know how these two features work and whether they can be fully relied upon under all circumstances to provide adequate cover to a policyholder.

When no claim bonus may not pay off

Most health insurance policies offer a no claim bonus to the tune of 10 per cent of the base sum assured every claim-free year. But there is a limit to the extent of the no claim bonus as well.

So, for example, if you have a health insurance policy with ₹5 lakh sum assured that offers 10 per cent no claim bonus for every claim-free year, you would have an added ₹50,000 at the end of the first policy year. At the end of the second year, you would have a bonus of ₹1 lakh (₹50,000 plus ₹50,000) and so on. But insurers cap the maximum no cumulative bonus in a health policy, usually to 50 per cent of the base sum assured, but can go up to 100 per cent as well. In the above example, at the end of the fifth claim-free year, you would have ₹2.5 lakh as the cumulative bonus, which is 50 per cent of the base sum assured.

So, your total cover would be ₹7.5 lakh (₹5 lakh plus ₹2.5 lakh).

But if you make a claim in the sixth year, the no claim bonus is reduced proportionately by most health insurance companies. So, your base cover for the seventh year would be ₹5 lakh and the cumulative bonus would only be ₹2 lakh, totalling to a ₹7 lakh cover. One more claim and the cumulative bonus comes down to ₹1.5 lakh.

Therefore, you cannot permanently claim that your total policy cover is ₹7.5 lakh after five claim-free years as each subsequent claim reduces the bonus applicable for the succeeding year.

Another aspect to note is that if there are restrictions on room rent allowed in the base policy – say, 1 per cent of sum assured, for example; then the cumulative bonus will not be added to calculate the 1 per cent figure. So, in the above example, if room rent is capped at 1 per cent, it would be 1 per cent of ₹5 lakh and not ₹7.5 lakh.

Restoration benefit, not useful in all situations

The restoration benefit refills the sum assured in a health insurance policy when it gets exhausted after a claim. But there are nuances that come in.

Most insurance companies allow only one replenishment in a policy year, and the amount is usually 50-100 per cent of the base sum assured. But this refill is allowed only when the entire base sum assured is exhausted in a single claim. For example, let’s say you have a policy for ₹15 lakh and make a claim for 10 lakh. The restoration benefit will not get triggered. Further, if you make another claim of, say, ₹7 lakh in the same year, you will have to pay ₹2 lakh from your pocket – ₹5 lakh balance from the policy will be paid by the insurer.

Also, the restoration benefit cannot be applied for a subsequent hospitalisation in the policy year in case it is due to illness related to the earlier hospitalisation and claim.

The restoration benefit is also not applicable to critical illnesses in most insurance policies. Further, It is not transferable in case you port your health insurance policy to another provider.

What should health insurance policyholders do?

While no claim bonus and restoration benefit are great add-ons, as they give added comfort by bolstering your base cover, they cannot be substitutes for a sizeable base cover itself.

As seen in the above cases, there are shortcomings to both these features and relying on them at all times can prove counterproductive.

You should take a sufficiently large insurance cover – a floater if family members are to be added – to suit your needs, and consider these features as mere useful add-ons. The cover must be reviewed periodically to increase the sum assured. If needed, a super top-up health cover can be purchased to enhance your overall coverage.