One of the earliest features of health insurance in India was NCB or the ubiquitous No Claim Bonus. Every claim free year, NCB increased the cover by a certain amount, with an upper limit of 1.5-2x the initial coverage. In an evolution of such feature, renewal bonuses take the initial cover to five times the original amount with no condition on claims within five years. While still an early feature available with limited insurers, existing policyholders can look for a switch or new policyholders can look to scale up their coverage.

Health insurance coverage is gaining the much-needed focus in insurance marketplace. Rising medical inflation and higher prevalence of lifestyle disease are forcing a rethink on the traditional 3-5 lakh health covers. Outside of a ₹1 crore cover (which is still a sturdy fix), policyholders are devising ways to reduce their protection gap either through top-ups, supplementing through workplace insurance, or starting a family floater plan. Renewal Bonus can be a useful tool to gain wider protection from the same insurance policy, without limited extra costs.

Renewal bonus

At the time of renewal, coverage amount is increased by original cover amount, till the cumulative amount reaches 5-6 times. For instance, one starts with a ₹5 lakh cover and at every renewal ₹5 lakh is added to the existing cover till it reaches 5-7x with a renewal bomus. This implies that against a maximum cover of ₹10 lakh by year 5 in NCB, renewal bonus can take coverage to ₹35 lakh by year 7.

Unlike an NCB, claims are not penalised in renewal bonus. These bonuses are awarded at the time of renewal, irrespective of the claim/claims made in the year. An NCB would add a specific amount to coverage only if the year was claim free and that too only till 1.5-2 times the original amount. NCBs are designed to promote claim free years. In an NCB, one would have to choose between making a claim of ₹50,000 (or thereabouts in most policies) or paying from pocket and retaining the NCB. A renewal bonus is designed to retain customers for longer periods, without any condition on claims.

Base policy or add-on

Niva Bupa’s Reassure plans for health insurance can increase a ₹5 lakh cover to ₹25 lakh with five continuous renewals. This feature is part of the base plan itself. Similarly, Care Health Insurance’s Supreme Direct plan increases the ₹5 lakh cover to ₹35 lakh in seven years with the base plan. Even if one makes a claim in any of those years, this being a renewal bonus, the pre-determined amount (₹5-7 lakh in this case) is added to the cover amount. In these two plans, the feature extends to higher cover amounts of ₹15-20 lakh as well. This implies that, in Niva Bupa health insurance a ₹20 lakh cover at beginning turns into a ₹1 crore cover in five years.

Aditya Birla Sun Life (ABSL) and Star Health insurance are offering this feature as an add-on. In ABSL, this add-on for a ₹5/20 lakh base cover will cost ₹885/1,432 on top pf the ₹9,000/14,500 for the policy. An amount equal to the sum insured is added to cover every year till 5x the base sum amount is reached, irrespective of the claim. In Star Health insurance half of the sum insured is added till it reaches 6x the amount and costs ₹500 on top of the ₹9,200 for the base cover. Also, this is available only for ₹10 lakh and above covers.

Ideal use and alternatives

As is evident, renewal bonus gradually increases the modest starting coverage over a period of five years. So policyholders who are comfortable with low coverage amount, to begin with, should prefer these policies. But along with renewal bonus, a ₹1 crore policy remains the go-to resort for higher covers. It is 30-40 per cent expensive compared to ₹5 lakh policy, but the jump in cover makes it worth it. Top-up also remains an efficient way to secure a higher cover and renewal bonus may be paired with a top-up policy to secure health insurance protection.

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