What is cumulative bonus and how does it work?

If you have purchased health insurance and want your insured amount to increase year after year, you can look for an insurance policy that offers a cumulative bonus.

However, it is important to note that the cumulative bonus differs from the no claims bonus which is usually offered to the insured when he/she does not make any claims during the policy year.

So let’s first understand what exactly this is.

What is cumulative bonus?

The cumulative surcharge is a cash benefit that is added to the sum insured at the beginning of each policy year.

Since the bonus is cumulative, it increases every year whether the claim is made or not. This cumulative bonus is available for both individual and family floater policies. In general, insurers offer a 5 to 50 percent increase in the original sum insured for each year.

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

Let’s understand this with an example. Suppose Ravi Kalra has insurance of 10 lakh and he gets this insurance coverage during the first year. If the policy is entitled to a 20 percent increase in the insured amount, the policy amount will increase 12 lakh the following year.

Also the following year – the insured amount increases again by another 2 lakh, increasing the total amount insured to 14 lakh.

“Insurance companies are now offering new products with cumulative bonus features that allow policyholders to easily increase their insured amount despite making claims during the policy year. There is often a dilemma among policyholders in choosing the right amount insured, especially during rising medical inflation and health uncertainties. This is where a cumulative bonus feature proves to be an added benefit in your health insurance,” says Siddarth Singhal, Business Head – Health Insurance, Policybazaar.com.

On the other hand, the no claims bonus is only given as an incentive not to file an insurance claim during the insurance year.

In addition to increasing the insured amount, there is another way the insurer can incentivize the policyholder not to file a claim: a discount on the insurance premium without changing the insured amount.

The underlying idea behind offering a premium discount and increasing the insured amount is to stimulate the lower number of claims.

Here we describe the common exclusions for health, life, motor and non-life insurance.

First published: January 18, 2023, 10:04 am IST