Health Insurance Restoration Benefit and NCB: IRDAI 2024 Rules

Personal Finance · Health Insurance · Quick answer 45 sec · Full read 12 min

What IRDAI 2024 changed about No Claim Bonus in health insurance

The 2024 circular transferred one decision from the insurer to the policyholder: the form of the No Claim Bonus. Before the circular, the insurer decided at product design stage whether NCB would accrue as a cumulative increase in the sum insured or as a discount on the renewal premium. Under the IRDAI Master Circular on Health Insurance Business (29 May 2024), the policyholder chooses the form at every renewal. Both forms are still available; the insurer must offer both and the policyholder selects. This is the change that was widely reported as a “new NCB rule” from the circular.

The mechanics behind the choice:

Cumulative bonus. Your sum insured increases by a fixed amount or percentage per claim-free year — typically Rs 50,000 to Rs 1 lakh per year, capped at 50–100 percent of the original sum insured depending on the plan. This grows your cover without a premium increase. The cap means a Rs 10 lakh base policy may grow to Rs 15 lakh (50 percent cap) or Rs 20 lakh (100 percent cap) over multiple claim-free years, after which no further NCB accumulates.

Discount on renewal premium. Your sum insured stays the same but you pay less at renewal — typically 5–10 percent per claim-free year, up to a plan-level cap. This benefits policyholders who are adequately covered but want to reduce the ongoing cost. Which of the two is the better trade depends on whether your base cover is actually adequate in the first place, which is a separate question from the bonus — how to size health cover for a salaried household sets out the starting figure.

One second-order effect of taking the discount rather than the cover: Section 80D of the Income-tax Act, 1961 (Section 126 of the Income-tax Act, 2025) allows a deduction for the premium actually paid, so a lower premium is a smaller deduction. The gap is small relative to the discount itself, but it is real, and the applicable limits are in our income tax guide for salaried filers.

When NCB resets, and the two credits the circular protects

In most plans, NCB resets fully when a claim is made in a policy year. This is the reset condition that causes the most policyholder confusion: three years of accumulated NCB vanish after a single hospitalization. Some newer plans have modified reset mechanics (bonus stops growing after a claim but does not fully reset; or reset applies only above a threshold claim amount) — these terms must be in the CIS.

Two protections the circular adds around NCB credits: policy credits including NCB are preserved if the policy is renewed within the grace period; and NCB credits transfer with the policy if you port to another insurer. The IRDAI’s health insurance rules overview covers portability credit transfer in its portability section; NCB is one of the credits explicitly protected. Porting has a separate gate those credits do not open: the new insurer still underwrites you, and what the 2024 rules require on underwriting and disclosure decides whether the port is accepted at all.

What the health insurance restoration benefit actually covers

Restoration refills your sum insured within the same policy year after a claim exhausts it — it is not mandatory under IRDAI 2024 and it is not present in every plan. This is the distinction that matters most when comparing policies: NCB exists in virtually all indemnity health plans; restoration does not.

How restoration works in plans that include it: if a claim during the policy year exhausts the sum insured (or a significant portion of it), the restoration benefit tops it up by a defined amount for the remainder of that year. The top-up amount varies: some plans restore 100 percent of the original SI; others restore 50 percent or a fixed rupee amount. Common restriction: many plans allow restoration only for claims arising from a different condition than the one that exhausted the original SI. A few plans allow same-condition restoration — that version is more useful and also rarer.

Where to find the restoration terms in your policy: the Customer Information Sheet (CIS), which the insurer must provide before policy issuance, must list restoration as a named benefit if the plan includes it. Look for the words “restoration,” “reinstatement,” or “recharge.” The CIS must state the restoration amount, the conditions under which it triggers, and whether it applies to related or unrelated conditions only. If the CIS does not mention restoration, the plan does not include it.

Restoration also does nothing about the caps that sit inside the policy. A restored sum insured is still subject to the room rent limit and to any procedure-level ceiling — the same structure described in the robotic surgery sub-limit rules, where the treatment must be covered but the amount paid can be capped. Refilling the headline figure does not lift a sub-limit that was already constraining the claim.

The practical case for restoration: a plan with restoration is most valuable for policyholders with high hospitalization probability in a given year — those managing chronic conditions, undergoing treatment, or with older family floater members. For a younger, healthier policyholder, restoration rarely triggers and is less material to the purchase decision.

NCB versus restoration: which matters more when you need it

When you are hospitalized, restoration matters immediately and NCB does not. NCB applies at the next renewal, on the assumption that the current year is claim-free. The moment you are admitted, that assumption breaks. Restoration, if your plan has it, can provide additional cover in the same admission cycle.

The clearest case: a policyholder with a Rs 10 lakh SI and three years of Rs 50,000 NCB accumulated (total SI: Rs 11.5 lakh) is admitted with a condition costing Rs 14 lakh. The insurer pays Rs 11.5 lakh and the NCB resets. If the plan has 100 percent restoration for a different condition encountered in the same year, the policyholder regains up to Rs 10 lakh of cover for further claims that year. Without restoration, a second hospitalization in the same year (for a different condition) would receive no payout.

A misconception worth addressing plainly: avoiding a legitimate claim to preserve accumulated NCB is a mistake in almost all cases. NCB growth — typically 10–20 percent of sum insured over five claim-free years — is slower than medical cost inflation in India, which has run at approximately 13–14 percent per year in recent years. That inflation figure comes from a secondary source and may not be current for 2026; check it against a primary source before relying on it. The underlying point does not depend on the exact rate: insurance exists to be used, and the cost of an out-of-pocket hospitalization to preserve NCB is rarely justified by the NCB value preserved.

The practical advice when buying: check whether the plan has restoration, read the same-condition restriction, and size the base cover plus top-up to reflect today’s actual hospitalization costs rather than relying on future NCB accumulation to close coverage gaps. Treat the brochure as marketing and the CIS as the contract — the same distinction the RBI rules on mis-selling and bundling draw on the banking side, and the same one that applies to term cover elsewhere in the household.