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Medical insurance: What is cumulative bonus and how does it work?

 If you bought a medical insurance policy, and want your sum insured to increase year after year, you can look for an insurance policy that offers cumulative bonus embedded in it.

It is, however, important to note that cumulative bonus is different from  no-claims bonus feature that is usually offered to the insured person when s/he does not make any claims during the policy year. 

So, let us first understand what exactly is this.

What is cumulative bonus?

The cumulative bonus refers to a monetary benefit which is added to the insured sum at the start of each policy year.

Since the bonus is cumulative — it increases for each year regardless of the fact the claim is made or not. This cumulative bonus is available for individual as well as family floater policies. Generally, insurers offer an increase of 5 to 50 percent of the original sum assured for each year.

The insurance policy may specify a maximum threshold on the cumulative bonus amount.

Let us understand this with an example. Suppose Ravi Kalra has an insurance policy of ₹10 lakh and he gets this insurance cover during the first year. If the policy is entitled to 20 percent increase in the sum assured, the policy sum grows to ₹12 lakh the following year.

The next year as well — the insured amount will rise by another ₹2 lakh, thus increasing the overall sum insured to ₹14 lakh.

“Insurance companies today offer new-age products with cumulative bonus features wherein policyholders can easily increase their sum insured despite making claims during the policy year. There is often a dilemma amongst policyholders in choosing the right sum insured especially during the rising medical inflation and health uncertainties. Here, a cumulative bonus feature proves to be an added advantage in your health insurance policy," said Siddarth Singhal, Business Head - Health Insurance, Policybazaar.com.

On the other hand, non-claims bonus is given only as an incentive for not making an insurance claim during the policy year.

Apart from increasing the sum assured, there is another way in which insurer can incentivise the policyholder for not making a claim – a discount in insurance premium without changing the sum assured.

The underlying idea behind offering a discount in premium as well as increasing the sum assured is to incentivise the lower number of claims.

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