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

Living costs rise year after year, and with various obligations and investment objectives fighting for your money, you'd want to get the most bang for your buck. If growing fuel expenses have perplexed you, you've been skimping on operating the air conditioner while driving; in that case, the information below may help you stop your automobile woes.

Insurers offer policyholders discounts on premiums paid as an incentive for not filing a claim, NCB Insurance. NCB in Insurance stands for No Claim Bonus. Depending on your claim history, it might result in a 20-50% reduction in your insurance premium outlay. If you're looking for affordable insurance plans, this feature can help you save money.

If you’re buying motor insurance for the first time, we’re sure you would have a few questions. Here’s how NCB Insurance works in practice.

Also read: What is Insurance ? Your Guide to Understanding Insurance in India

A policyholder can obtain the benefits of NCB Insurance in two ways. The policy contract must specify the mechanism that applies to your insurance policy.

• Discount on Premium

In this case, the NCB is considered a discount on the premium amount rather than a monetary dividend. The bonus amount is arrived at by subtracting the amount of the premium owed to the insurance provider.

• Cumulative Benefit Method

It is accumulated in the policy and added to the total promised, subject to a maximum upper limit (typically 50% of the assured value). To avail of this benefit, renewing the insurance policy promptly is essential.

To understand the workings, let's take a comprehensive example:

Mr Desai has taken a car insurance policy for his Honda City. The car insurance policy provides coverage of ₹ 10,00,000 and offers a 20% NCB on the insurance premium.

Year 1: No claim was made against the policy by Mr Desai; thus, he is eligible to avail of the NCB.

Therefore, in Year 2, he will get a discount of 20% on the premium for the renewal of the car insurance. Likewise, if Mr Desai continues not claiming anything on his policy, his discount rates will increase with each subsequent year of no claim filed.

To be eligible for NCB Insurance, you must have a comprehensive insurance policy and not a third-party insurance policy, wherein there is no claim against the policy. In case of any minor or major claims, your eligibility for availing of NCB will be void.

The rules for NCB are as follows:

• NCBs only apply to comprehensive policies offered by an insurance company and not to a third-party liability policy.

• It applies only when no claims are on an insurance policy in the previous years.

• The rules allow you to transfer the discount from one vehicle to another under the same owner. Since the insured is the policyholder, not the vehicle, policyholders can file for a change in a car's ownership to facilitate the transfer.

• During renewal, a No Claim Bonus (NCB) can be transferred from the primary owner to another individual, provided specific conditions are met.

• Failure to renew the policy within 90 days will result in the loss of the NCB. Therefore, it is crucial to renew the policy promptly to maximise the benefits.

NCB usually applies to general insurance policies, like auto or Health Insurance. An example of each is given below for clarity:

• NCB in auto insurance is a bonus granted to the policyholder who made zero claims in the previous year. When your auto insurance policy is due to be renewed, you can become eligible for up to 20% NCB after the first year, which might increase to 50% at the end of 5 successive claim-free years, cutting your premium by half.

• No Claim Bonus in the Health Insurance sector also functions similarly. Sometimes, hospital expenses may not be substantial, and the insured individual may choose to make out-of-pocket expenses instead of invoking the insurance policy. NCB is offered to a policyholder if no claims were made during the Health Insurance policy period.

The quantum or rate of the NCB is pre-specified in the policy contract. Such a bonus is also transferable to another policy purchased from a different insurer.

NCB in insurance is applicable even for cases where a policyholder files for a claim but is rejected for certain reasons, as mentioned by the insurance company. So, if your Health Insurance claim gets rejected, you will still be eligible for NCB. The waiting period in Health Insurance is also factored in while evaluating your NCB eligibility.

A policyholder can save/use the NCB for up to one claim per policy tenure. The discount can differ based on the number of no-claim tenures. A list of discount rates is given below:

The table mentioned above gives a standardised rate chart. However, the rates can differ from policy to policy depending on the terms and conditions. Some companies provide insurance discounts of up to 55-65%.

NCB in a policy helps the policyholder get added benefits and a better ROI for his investment. It is an incentive towards reduced moral hazards by the insured. The insured can also protect their NCB by paying an extra amount along with the premium, which protects the insured's NCB even if there is a need for a claim.

For insurance companies, an NCB helps promote responsible insurance behaviour and allows the policyholders to avail discounts on their premiums, encouraging them to stay invested in an insurance policy.