New Delhi [India], December 04: Auto insurance is a crucial financial safety net for car owners, in addition to being required by law. Apart from covering damages, insurance policies reward responsible behaviour through a feature called the No Claim Bonus (NCB).
You are eligible for this bonus if you don’t claim it during a policy year. It translates into significant discounts on the premium while renewing car insurance. Understanding how the no-claim bonus in car insurance works and how it is calculated can help you save money while enjoying comprehensive coverage.
What is a No Claim Bonus (NCB)?
Insurance companies give policyholders a discount known as the No Claim Bonus (NCB) in exchange for not filing any claims during the policy’s term. This reward incentivises responsible driving and vehicle maintenance.
Since third-party car insurance is a legally required fixed cost, the NCB reduction is only applied to the own damage (OD) portion of the premium.
How is NCB Calculated in Car Insurance?
The calculation of the no-claim bonus in car insurance starts from the second year of the policy. Here’s how it works:
1. First Claim-Free Year: After the first claim-free policy year, you are eligible for a 20% discount on your own damage premium during the next renewal.
2. Cumulative Increase: With each consecutive claim-free year, the discount increases as follows:
1. 2nd claim-free year: 25%
2. 3rd claim-free year: 35%
3. 4th claim-free year: 45%
4. 5th claim-free year: 50%
The NCB is capped at 50%, meaning you cannot accumulate more than this percentage even after multiple claim-free years.
Factors That Affect NCB in Car Insurance
While NCB offers great savings, it is subject to certain conditions:
1. Claim History: Any claim made during the policy year resets the NCB to zero, and you have to start accumulating it again from scratch.
2. Timely Renewal: Your accrued NCB is forfeited if you don’t renew your auto insurance within ninety days of expiring.
3. Own Damage Component: Only the personal damage premium is subject to NCB; the third-party auto insurance component is not.
How Does NCB Work for Renewals and Policy Transfers?
During Renewals
When you renew your policy after a claim-free year, your insurer will apply the NCB discount automatically. However, if you claim the policy term, the NCB benefit is lost. So, you must pay the full premium during the next renewal.
During Policy Transfers
The accrued NCB can be applied to your next auto insurance policy if you decide to sell your current one. Similarly, when switching insurers, you can carry forward your NCB benefits by obtaining an NCB certificate from your previous insurer.
When is the No Claim Bonus Terminated?
Despite its benefits, NCB can be terminated under the following circumstances:
1. Making a Claim: If you file a claim during the policy year, your NCB is reset, and you’ll lose the discount in the next renewal.
2. Policy Lapse: The accrued NCB will be terminated if you do not renew your insurance within ninety days of its expiration.
3. No Transfer: The bonus is forfeited if you don’t transfer the NCB to a new insurer or a new vehicle policy within the specified timeframe.
Can You Protect Your NCB?
Yes, policyholders can protect their NCB through an NCB Protector add-on cover. By paying a small additional premium, you can retain your accumulated NCB even after making a limited number of claims during the policy term.
For instance, if you have an NCB of 45% and make one claim during the policy year, the NCB protector will ensure you still retain the same discount when renewing the policy. That is particularly beneficial for long-term savings as it prevents a reset in your accumulated NCB.
Benefits of NCB in Car Insurance
The no-claims bonus is more than just a discount—it’s a reward for responsible driving and car maintenance. Here’s why it’s valuable:
1. Lower Premiums: Over time, the discount on your own damage premium can significantly reduce the cost of your car insurance.
2. Encourages Safer Driving: Knowing that claims affect NCB motivates policyholders to drive responsibly and avoid minor incidents.
3. Transferable Benefit: The NCB can be transferred to a new vehicle or a new insurer, ensuring your safe driving record is recognised wherever you go.
Tips for Maximising NCB Benefits
1. Avoid Minor Claims: Consider paying out-of-pocket instead of filing a claim for small damages, as this will help you retain your NCB.
2. Renew Policies on Time: To prevent losing your NCB benefits, always renew your auto insurance within ninety days of its expiration.
Opt for Add-Ons: Consider purchasing an NCB Protector to safeguard your bonus even in the event of a claim.
