What is cumulative bonus and how does it work?

If you have bought a health insurance policy, and want the sum assured to increase every year, you can look for an insurance policy that offers a compounding bonus in it.

However, it is important to note that the cumulative bonus is different from the no-claims bonus feature that is usually offered to the insured when he does not make any claims during the working year.

Let’s first see what it actually is.

What is a cumulative bonus?

Cumulative bonus refers to financial benefits that are added to the sum assured at the beginning of the policy year.

Because the bonus is cumulative – it increases every year regardless of whether a claim is made or not. This cumulative bonus can be used for individual and family floater policies. In general, insurers offer increases of 5 to 50 percent of the initial sum assured each year.

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

Let’s see this with an example. Suppose Ravi Kalra has an insurance policy 10 lakh and he gets this insurance coverage for the first year. If the policy receives a 20 percent increase in the sum assured, the value of the policy continues to increase 12 lakh the following year.

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Next year too – the guaranteed amount will rise again 2 lakh, thus increasing the sum assured by 14 lakhs.

“Today’s insurance companies offer new products with integrated performance features that allow policyholders to easily increase their sum assured even when making claims throughout the business year. Often, there are problems on the responsibility of choosing the safest funds during the rising health costs and health uncertainties. Here, the combined bonus feature proves to be an additional benefit of your health insurance policy,” said Siddarth Singhal, Business Head – Health Insurance, Policybazaar.com.

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On the other hand, no claim bonus is given only as an incentive for not making any insurance claims during the policy year.

In addition to increasing the sum assured, there is another way that insurers can encourage policyholders not to make claims – a reduction in insurance premiums without changing the sum assured.

The basic idea behind offering a discount on premium as well as increasing the sum assured is to encourage a lower number of claims.


Here we outline common exclusions for health, life, motor and general insurance.

First published: 18 Jan 2023, 10:04 IST


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