No Claim Bonus

No Claim Bonus

A motor insurance policy provides huge benefits apart from protection of the vehicle. No claim bonus rewards you for maintaining your vehicle, and for being careful and responsible. Yes, you read that right! It rewards you for not making a claim in a particular policy year.

How? In the form of a No Claim Bonus.

What is a No Claim Bonus?

A No Claim Bonus is an incentive that the insurance company gives you for not making a claim in a policy year. It is a discount that you can avail on the premium while renewing your motor insurance policy. Fewer damages mean fewer claims and greater NCB.

How does It Work?

For every year when you don’t make a claim under the motor insurance policy, you get a discount on the premium amount in the next policy year.

As per the rules, you can earn a discount of around 20% to 50%. Here’s a table that explains how the NCB increases with the number of claim-free years.

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, the No Claim Bonus increases cumulatively with each claim-free year until you reach five consecutive claim-free years, at which point your NCB gets capped at 50%.

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There’s a Catch…

Now, when you make a claim under the motor insurance policy, the No Claim Bonus accumulated under the policy will reset to 0%.

Suppose you’ve not made any claims under the policy for five consecutive years and earned a discount of 50% on the premium amount. Suppose after 1-2 years , you meet with an accident and damage your car. In this case,when you will avail the claim, the No claim bonus you’ve earned for years will reset to 0%.

Why is It Important To Mention The Correct NCB While Purchasing A Policy?

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.

After issuing the policy to you, insurance companies contact your previous insurer to verify your declaration. In case they find a misrepresentation, they may charge an extra premium or cancel your policy. 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.

Benefits Of A No Claim Bonus

  • Reward For Maintaining Your Vehicle

    For every claim-free year you get a discount at the time of renewal of the policy. This means if you maintain your vehicle well and don’t let it suffer any damage and make no claim during the previous policy tenure - you are eligible for a No Claim Bonus.

  • Discount On Premium Amount

    You can save around 20% to 50% on your premium amounts if you don’t make claims under your motor insurance policy for five consecutive years.

  • Is Connected To You

    The No Claim Bonus is not tied to your vehicle, it is tied to you. So, if you sell your old vehicle and purchase a new one, the No claim bonus will remain intact and can be applied to the new vehicle which you have purchased.

Let’s understand in detail how transferring the no claim bonus to a new vehicle works.

Transferring The No Claim Bonus When You Buy A New Vehicle

If you decide to sell your old vehicle and purchase a new vehicle, you can simply transfer the No Claim Bonus from the old vehicle to the new vehicle.

How? All you need to do is inform the insurer about the sale of your old vehicle and request them for NCB transfer certificate to transfer the accumulated No Claim Bonus to the new vehicle.

You may have to submit some documents for transferring the NCB to your new vehicle, like -

New Registration Certificate

Sales Deed

Duly signed Form 29/ Form 30

Copy of insurance policy of old car

Please note, this list may vary across insurance companies.

What is The NCB Certificate?

The No Claim Bonus certificate is a document that is proof of the NCB that you have earned during your car insurance policy tenure. It is required when you want to transfer your NCB to the new policy of your new car.

Note: The NCB certificate will only be valid for 3 years from the date of issue.

Transferring The NCB To Another Insurer

You may want to shift to another insurance company because -

  • You are not satisfied with the services of your current insurer, or

  • There are certain features/ benefits you want to opt for, which are not available with your existing insurer.

Now, while you're switching, here’s how you can transfer the NCB discount to the new insurance company -

Important Point To Note: No Claim Bonus Can Be Terminated

If you do not renew your existing insurance policy within 90 days from the date of expiry then your No Claim Bonus will expire, and you will not get the benefit anymore. So, remember to renew your motor insurance policy on time.

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Should You Raise A Claim For Small Damages Or Try Saving Your No-Claim Bonus?

Making a claim will lead to a loss of NCB, which, in turn, will lead to you paying more money for the policy for the next renewal, since you will lose the discount on the own damage premium.

Your No Claim Bonus will be affected even if the size of the claim you raise is small. So is it worth raising a small claim or should you repair those minor damages yourself and save the No Claim Bonus in the policy?

To get an answer to this question, it is necessary to understand the payment process of a claim . When a claim is raised to the insurer, they deduct a certain amount from the claim money before paying it to you. That includes the cost of consumables, deductibles, and the depreciation value of the parts of your vehicle.

Now, if, unfortunately, your car meets with an accident that causes damages to the car, your instant thought will be to raise a claim with the insurer. But what if the claim is of a smaller amount?

Let's look at an example and understand how smaller claims work.

For instance, say your car meets with an accident. It causes minor damages worth Rs 3000. After you raise a claim, the insurer will deduct the compulsory deductible, depreciation charges, and consumable charges from the claim amount, and then make the payment to you,

Let’s say, the vehicle’s Cubic Capacity (CC) is less than 1500, so the compulsory deductible will be 1000/- and let's say the consumable charges amount to 500/-. Another 1000/- gets deducted for depreciation.

So the amount payable will be:

Rs. (3000 - 2500)

= Rs 500

Here, as you can see, if you raise a claim, you will end up paying more money than the insurer.

Now, let’s assume that you have a 20% No Claim Bonus on your insurance policy. If you raise a claim, you will lose out on the bonus during the next renewal.

In this scenario, it seems better to shell out some money from your pocket and get the vehicle repaired, so you can save your No Claim Bonus.

Summing Up!

For each year you don’t make a claim, you get a discount on the premium amount of your motor insurance policy. You can earn a discount of around 20% to 50% in 5 years. As soon as a claim is made under a policy, the no claim bonus resets to 0% irrespective of the claim amount paid. Further, you can also transfer the no claim bonus if you’re planning to sell your old vehicle and purchase a new one.

Frequently Asked Questions

If you have purchased a brand-new policy for your new car for the first time, then you will be eligible for a No Claim Bonus from the second year of your policy, provided you have not made any claim in the first policy year.

If you have an old car that you are planning to sell, then you can transfer the NCB of your old vehicle to your brand-new car.

An NCB discount is given only on own-damage policies. In a third-party policy, you get no NCB discount since there is no own-damage component.

The maximum no-claim bonus one can get in a car insurance policy is 50% - post which the percentage remains the same even if you do not make any claim.

Your no-claim bonus resets to zero when you make a claim. Even if you make a small claim the no-claim bonus will go back to zero. If you wish to protect your NCB even if you make a claim, you can customise your policy with the NCB Protector add-on by paying some extra premium.

If you declare a wrong NCB while purchasing the policy, your insurer has all the right to cancel your policy midway. If it is found by the insurer that you have declared a wrong NCB, they will either ask you to make the payment of the differential amount and continue with your policy or else they can cancel your policy.

And, if the NCB is found to be incorrect at the time of claim, the chances of your claim being rejected are quite high.

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