What is No Claim Bonus (NCB) in Car Insurance?

The cost of living is increasing each year. With multiple bills and investment priorities competing for a share of your wallet, you would surely want the biggest bang for every buck you spend! If you have been confounded by your rising fuel bills and have been skimping on running the air conditioner while driving, what follows, might help you put the brakes on your car woes.As a reward for not making a claim, insurers offer policyholders discounts on premium paid. This is called No Claim Bonus (NCB). Effectively, it can result in a 20-50% reduction in your insurance premium outgo, depending on your claim history. If you’re scouting for cost-effective motor insurance plans, this feature can help reduce your overall premium by quite a margin.If you’re buying motor insurance for the first time, we’re sure you would have a few questions. Here’s the low-down on how NCB works in practice:

For NCB to apply, you need to have made zero claims in the previous policy year. When your motor insurance policy is due for renewal, you can become eligible for up to 20% NCB after the first year, which might increase up to 50% at the end of 5 successive claim-free years, cutting down your premium by half.

NCB is not affected in case you change your car. Since NCB accrues to the policyholder, you can easily upgrade your ride and enjoy credit. NCB is portable to another provider, according to Insurance Regulatory Development Authority (IRDA) guidelines.For example, if you have earned NCB of 20% with your existing provider, your new premium can reduce to the extent of your accumulated NCB.

NCB is available only on comprehensive insurance plans and not on third-party liability plans.

NCB works on the principle of zero claims. If your car sustains a minor dent and you claim damages from your insurer, you lose the benefit in its entirety. If the damage is relatively light, you may opt to pay for it out-of-pocket instead. By forgoing short term gratification for long term rewards, you can benefit from a significant reduction in insurance premium.

NCB is an incentive offered by insurance companies to promote safe driving. It also helps them motivate policyholders to avoid making claims for minor damages.

If your policy lapses and is not revived within the 30-day grace period, insurance coverage and any accrued NCB is terminated.

Every year, the expense of living rises. You would undoubtedly want to get the most value out of every penny you spend with so many bills and investment priorities jostling for a piece of your budget! What follows may help you stop your car problems if you've been confused by your rising fuel costs and have been stingy with running the air conditioner while driving.Let's say you go the entire insurance term without filing any claims. Your insurance company gives you a discount on the own damage portion of your insurance price when you choose to renew the auto insurance before its expiry. Your No Claim Bonus is capped at 50% when you go five years without filing a claim.This discount starts at 20% for the first claim-free year and rises progressively with each claim-free year. This equates to significant savings over a period of time because the personal damage component makes up a substantial portion of your insurance price.

The number of four-wheelers in India is rising quickly. However, you should be aware that purchasing auto insurance in India is required and that you must do it at the time of purchase.Furthermore, the majority of insurance companies offer NCB benefits to policyholders , which is good news. Actually, NCB is an acronym for "No Claim Bonus." It is essentially a type of incentive that vehicle insurance companies offer to their clients when they avoid making any claims during the course of a policy year.When the insured person renews their insurance in the next policy year, they will receive a discount on their rate. Your auto insurance offers you a unique advantage by allowing you the option to lower your premium even while everything else around you increases in price.It functions nearly like a rewards system, though. If you haven't filed any claims during your first policy year, then you'll initially receive a 20% NCB discount. As a result, you continue to profit an extra 5% after two years without making claims. This might result in a 50% decline for the sixth year in a row. In the end, it works out better for you in the long term if you are a great driver.

During the renewal of the insurance, NCB or a No Claim Bonus is given for the following year. Typically, NCB is valid for 90 days following the date of renewal. The NCB becomes null if the policyholder doesn't renew the policy within this time frame.In certain situations, you might need to apply for new coverage and accrue NCB based on your new insurance policy. Your No Claim Bonus (NCB) comes with motor insurance portability . You can receive a discount on the premium at the time of renewal if you do not submit a claim during an insurance year. This NCB would be carried over if you choose the portability of your auto insurance.Transferring NCB from one insurance company to another is possible. No claim bonus can even be applied to a new car the same person buys. Only private to private vehicles are permitted to transfer NCB. The transfer is ineligible if you move from a four-wheeler to a two-wheeler.The procedure for transferring a No Claim Bonus is detailed below.1. Give a photocopy of the ownership transfer certificate and the previous registration certificate to the new insurance company in order to transfer NCB from a sold car to a new vehicle.2. You can pick up the NCB certificate after sending a copy of the delivery notification to the insurance provider.3. You can submit a written request for an NCB transfer from the old policy to the new one.4. At any time throughout the allocated time period, the received NCB certificate may then be transferred to the new insurance policy.

Calculating NCB or the No Claim Bonus is easy. The percentage of discounts might differ from one insurance company to another, but the process of calculation remains the same. Here is how the NCB is calculated.In the second year, which is the year of the policy renewal, NCB begins with a 20% discount. This may increase during the sixth year to a maximum of 50%. You might receive a 20% discount in the 2nd year, a 25% discount in the 3rd year, a 35% discount in the 4th year, a 45% discount in the 5th year, and a 50% discount in the 6th year.

No Claim Bonus in car insurance, as the name implies, is the insurer's gift to the policyholder for not filing a claim in the years prior. NCB cannot be claimed as a right; instead, NCB must be earned by maintaining a claim-free record. Because you don't have a claim-free history when you get your first comprehensive motor insurance policy, you are typically not entitled to any NCB discounts on the premium paid.If you renew your policy for the first time and there haven't been any claims in the previous year, then you can claim a beginning NCB of 20%. Each year without a claim, the discount grows slowly until it reaches 50% after five years. Some insurance companies give NCB discounts till 55% and 65% as well.

The policyholder, not the car, is linked to the NCB. Therefore, if you buy a new automobile to replace your old one or change insurers when your policy is up for renewal, then you keep your NCB.
The transfer of NCB is a pretty easy procedure: Let's say you bought an automobile in 2008, and on or around the fifth policy anniversary in 2013, you sold it. You would have received a 50% NCB discount if you had not made any claims throughout the time period. Let's say you purchase a new car in 2015, and the insurance premium (excluding service tax) is Rs. 18,000, of which Rs. 15,000 covers the cost of the own damage component.You can apply the NCB gained on the prior auto insurance policy to the new auto insurance policy and receive a discount on the initial rate due. You will pay only Rs. 10,500 instead of Rs. 18,000 because the applicable discount on the policy premium is 50% of Rs. 15,000, or Rs. 7,500.Here is the situation with your no claim bonus in the event of an accident. You will receive the required NCB if you have an accident but don't report it and renew your insurance. But if you have an accident and make a claim, then NCB will be completely lost. Additionally, NCB won't be applicable anymore.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.