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What happens to your sum insured when you claim health insurance

LiveMint logoLiveMint 31-05-2017 Deepti Bhaskaran

You need health insurance to protect you from expensive medical bills, should an ailment or mishap befall you. A claim on your policy means your insurer ends up paying your medical and hospitalization bills for you. Therefore, to encourage you to maintain a healthy lifestyle—so your visits to hospitals are minimal—insurers give you a no-claim bonus for every year you don’t make a claim on your policy. This bonus typically bumps up your sum insured every year. But do you know what happens if you do make a claim? Read on to find out.

Typically, health insurance policies are annual contracts. This means, you renew your policy every year. And for every no-claim year—the year in which you do not make a claim on your health insurance—the insurer rewards you with a no-claim bonus when you renew the policy.

So, on renewal the insurer usually bumps up your sum insured by a fixed percentage. For instance, many policies bump up the sum insured by 10%, every year, of the base sum insured, up to a maximum of 50%. So, if you started with a sum insured of Rs1 lakh, in five no-claim years your sum insured could be bumped up to Rs1.50 lakh. The insurer does not charge you for the extra Rs50,000, as that’s the bonus sum insured. But, you may still end up paying a higher premium as you grow older. Some insurers offer to double the sum insured through a 50% bump-up for every no-claim year. While no-claim bonuses help—they provide some cushion against medical inflation— that does not mean you don’t buy adequate health insurance. That’s because, when you do make a claim on your policy, it impacts your bonus sum insured.

Although the rules have improved to make sure you don’t forfeit the entire bonus on making a claim, it can still be a serious setback.

According to the new rules, if a claim is made in any particular year, the cumulative bonus accrued may be reduced at the same rate at which it accrued.

In the example above, suppose a person bought the policy for a sum insured of Rs1 lakh and did not make a claim for 5 years. Then, at a 10% bump up rate the cumulative sum insured would come to Rs1.5 lakh. Now, what if in the sixth year the policyholder makes a claim. So, when she next goes to renew her policy, her sum insured will reduce by 10% of the base sum insured, and would now be Rs1.4 lakh.

If she makes another claim, then the sum insured would reduce to Rs1.30 lakh. Likewise, a bump-up at the rate of 50% every no-claim year means a bump down by 50% for a claim year.

The thing to keep in mind is that if you don’t make a claim in the next year, you will again get a bonus. That is, for a claim-free year after you make a claim, you will again be entitled to a bonus.

Also, the insurer can only reduce the bonus amount for making a claim, and not the base sum insured. In other words, the base sum insured—Rs1 lakh in our case above—is not impacted at all.

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