Avoiding claims to earn 'bonus' not always good

It is better to have a higher sum assured rather than discount on premium due to no-claim bonus

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Most health insurance companies give a 'no-claim bonus' to policyholders who don't make any claims. It could be either an increase in the sum assured or a discount in the premium, when the policy comes up for renewal. Anticipating this bonus, there are instances where customers don't make claims if the amount is not huge.

The percentage of bonus given by companies can be as low as five per cent and can go up to as high as 50 per cent, depending on the number of years without claims.

According to Yashish Dahiya, chief executive officer, Policybazaar.com, ideally, whether or not a consumer makes a claim should not make any difference. There should neither be a 'no-claim bonus' nor policyholders penalised for making a claim, by charging higher premium or loading. "Most companies do charge loading, due to which it becomes imperative for customers not to make claims," Dahiya says.

If you are looking to buy a health insurance policy, it is preferable to choose a company that offers a higher sum assured as no-claim bonus.

"A higher sum assured is better. For instance, if you are getting a 50 per cent no claim bonus and if your premium is Rs 2,000, you will get a discount of Rs 1,000. But instead, it is more beneficial if you have a sum assured of Rs 3 lakh and it increases to Rs 4.5 lakh, at the same rate of 50 per cent," Dahiya explains.

If the claim amount is too low, say around 30 per cent of the premium being paid, then not claiming insurance might be a better option. For instance, if the premium is Rs 5,000 for a health cover of Rs 5 lakh, then it is better not to make a claim of Rs 1,500-2,000.

This is because most insurance companies charge loading. If you make a claim, you will have to pay a certain percentage higher than the previous year's premium at the time of renewal. It could be five per cent additional premium for every year of claim, or it could be based on the ratio of the premium amount to claim amount. But apart from this, premiums can rise even when there is no claim.

Health premiums see a natural rise every year on account of rising medical inflation. According to a survey by insurance broking firm, Mercer Marsh, medical inflation has been 15-18 per cent per annum in recent years. In 2012, the typical premium increase has been in the range of 16-22 per cent. So, there is every possibility that despite not making claims, your premium will rise.

Another reason for rising premiums is the policy holder moving into a different age slab, says Sanjay Datta, head, underwriting and claims, ICICI Lombard. Most insurers fix premiums based on slabs of five years, such as 40-44 years and 45-49 years, and so on. Sometimes, the policyholder might get into a higher slab, say from 44 to 45 years, and find that the premium has increased although there has been no claim. Therefore, before buying a policy, you must always ask for the schedule of no-claim discounts, which are pre-fixed.

"It is advisable to maintain the percentage of no-claim bonus. In case the premium increases, you will still get the benefit of the same no-claim bonus percentage on the higher premium. So, although your premium will go up in value terms, you are still getting a discount on the higher premium amount," Datta says. Besides, making a claim can be a hassle, which is best avoided in case the amount is too small. Also, in case of senior citizens or those suffering from serious ailments, it is better to claim, since the premiums for such people will see a natural rise in any case.