Declaring wrong NCB when renewing car insurance can impact future claims

by SMCIB on Saturday, 10 June 2023

Declaring wrong NCB when renewing car insurance can impact future claims

We love the idea of bonuses. Best deals, coupon codes, vouchers, and rewards excite us as consumers. Scientists say it’s all because neural pathways get activated in the brain. Well, receiving something makes us happy - it’s as simple as that.

Now, what if we tell you that your car insurance, too, comes with a reward?

Presenting to you the No Claim Bonus, by which you get rewarded for practicing safe driving skills. You get a discount on your car insurance premiums if you haven’t made any claims during the preceding year.

To avail of this discount, you are required to declare the NCB you’re eligible for in your insurance application. And this declaration is usually not verified by the insurance company. So, what if you put in a higher NCB than the one you are entitled to? What if you make a hurried careless mistake while filling out the application? Does putting in the wrong NCB affect any future claims? What is the impact?

Let’s have a look.

What Is a No Claim Bonus (NCB) In Car Insurance?

Before we start talking about the wrong NCB, let's quickly understand what the No Claim Bonus actually means. If you already know what NCB is, you can skip a few paragraphs!

A No Claim Bonus (NCB) is a reward given by the insurance company for not filing any claims throughout the policy period. It acknowledges you for maintaining your vehicle, for being careful and responsible.

NCB is a discount that can be availed on your car insurance policy’s Own-Damage premium amount. Fewer damages mean fewer claims and a greater NCB.

How Does A No Claim Bonus Work In Car Insurance?

For every year claim-free year under your Car Insurance Policy, the insurance company will give you a discount on your next renewal premium amount. This discount will keep on increasing cumulatively every year you don’t file a claim.

You can earn a No Claim Bonus discount ranging from 20% to 50% under a Car Insurance Policy. Let’s understand how the No Claim Bonus works - with the help of this table.

Claim-Free Year No Claim Bonus Discount %
After 1st claim-free year 20%
After 2nd claim-free year 25%
After 3rd claim-free year 35%
After 4th claim-free year 45%
After 5th claim-free year 50%

So, this is how the No Claim Bonus will increase every year you don’t make a claim. However, in case you make a claim, be it big or small, the No Claim Bonus will reset to zero.

For instance, Rehaan has a 35% No Claim Bonus accumulated in his Car Insurance Policy this year and he files a claim due to an unforeseen circumstance. Now, next year when Rehaan renews his policy, his NCB will be 0%. Why? Because he filed a claim in the previous year.

Importance Of Mentioning The Right NCB While Purchasing/Renewing A Policy

As discussed above, you get an NCB discount on your premium amount if you don’t make a claim in a policy year. When you declare the NCB of the previous year, the insurer will calculate the NCB for the current year as per the slab shown in the table. So, when you renew your policy, a new insurance company will basically trust your declaration, consider the applicable discounts and take the premium payment. Sounds simple, right? Not really!

After issuing the policy to you, insurance companies as a process contact your previous insurer to verify your declaration. In case they find a misrepresentation, they may charge an extra premium or worse cancel your policy mid-way! Yes, you risk being without cover midway if you are found declaring a wrong NCB.

Buying a new policy from mid-way is a pain. It will involve you finding a new insurer who, as per the process for lapsed policies, requires an inspection of your vehicle.

Sometimes, the previous insurer contacted may not respond to the verification of NCB, and the new insurer may ignore it. But that does not relieve you. In case you have a claim, the insurer will, as per the process, if your NCB is not validated, again contact your previous insurer to validate the NCB details only at the time of a claim. In case the NCB declared is wrong, the insurer will have the right to reject your claim.

Why Do Insurers Decline Claims Due To the Wrong NCB?

It’s simple. The insurer issued you a policy for a certain premium calculation, which is in turn, based on certain declarations. These declarations include your NCB declaration. As per regulations, and the policy document, an insurer has the right to cancel the policy, if your declarations are found to be incorrect or missing. The right to cancel is even higher in case there is an additional premium liability due to the missing or incorrect declaration.

Let's understand this better with Himesh’s example.

Himesh wants to renew his policy, which is about to expire in a week. In his previous policy, he had a 20% NCB. But to get an extra discount on the premium, he declared the previous year's NCB as 25%. As a result, his new NCB was calculated as 35% - so, he got a 35% discount on his premium amount.

Himesh meets with an accident a few months after renewing the policy and raises a claim with his insurance company. The insurer rejects the claim stating that the NCB mentioned in his policy was incorrect. As a result, Himesh had to pay for the expenses out of his own pocket.

You can see why it is crucial to declare the correct NCB when purchasing or renewing a Car Insurance policy. If you're really lucky, the insurance company may give you the choice of paying the difference amount and then approve your claim. Alternatively, insurers may deduct the difference from your overall claim amount. However, most insurers will reject your claim straight away if there is a mismatch in the NCB. You should, therefore, not take this for granted and always declare the correct NCB to the insurance company.

What Can You Do To Avoid Such Issues At The Time Of Claim?

Here are two things you can do to avoid any issues during a claim under your policy -

  1. You should not try to claim a higher No Claim Bonus discount. Take the effort to retrieve your previous insurance policy, find the NCB discount you received and ensure that you declare the correct NCB while purchasing or renewing the policy.

  2. After the policy is issued, if you find out that you entered the incorrect NCB by mistake, notify your insurance company at the earliest and have the No Claim Bonus corrected.

So that is all about why you should declare the correct No Claim Bonus to the insurance company when purchasing or renewing your policy. If the insurer discovers that the NCB declared is incorrect, they may reject your claim or refuse to settle the entire claim. To avoid such complications during a claim, make sure you declare the correct NCB.

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