11 Apr 2014

Rupeepower Editorial Team

Claim Your No Claim Bonus

“No claim bonus” or NCB, is a term often used in the motor insurance space. For a policyholder a NCB in the simplest terms would imply a ‘gift/discount’ given to the him/her by the insurer in the renewal premium amount for making no claims in the previous year. The discount ranges from 20% to 50% (this bonus rate is the same across all the insurers) on the own damage premium. In other words NCB rewards a policyholder for being a good driver and helps one save on the motor insurance. Motor insurance policy providers limit the period of no claims bonuses to 5 years of no claims. Further it needs to be taken into account that if a claim is made during a policy year, no NCB will be given in the corresponding next year. A NCB is deemed to be terminated if the policy is not renewed within 90 days from the date of expiry of the existing policy. The insurance providers benefit from this as it discourages a policyholder to make frequent and smaller claims.
Once the insurance claim is made the NCB benefit is back to zero. The next premium therefore will be higher as it will not include the amount of NCB. The no-claim bonus, however, is applicable only to the ‘own damage’ part of the premium, which is 80% of the policy premium. Third-party damage premiums make up the remaining 20%. Since the NCB is linked to the policyholder, it is transferable from one insurer to the other and also to a new vehicle of the same type (provided the policyholder has sold his old vehicle for a new one and has an accumulated no -claim bonus). When selling an old vehicle it is important that the policyholder gets the NCB from the insurer which can be utilized within three years (where the existing vehicle is sold and a new vehicle is purchased).
The question worth pondering over is as to when should one opt for NCB and when not. A simple calculation shows that if the NCB amount one stands to gain in the forthcoming year exceeds the estimated amount on repairing the damage, it makes sense to not raise a claim and pay for the damages from one’s own pocket.

 

 

How does NCB work?
No claim bonus increases every year as per the following table:

All Types of Vehicles % of Discount on OD* premium
No claim made or pending during the preceding full year of insurance 20%
No claim made or pending during the preceding 2 consecutive years of insurance 25%
No claim made or pending during the preceding 3 consecutive years of insurance 35%
No claim made or pending during the preceding 4 consecutive years of insurance 45%
No claim made or pending during the preceding 5 consecutive years of insurance 50%
*OD= Own Damage

As an example let us consider the premium payable towards a vehicle whose insured declared value (IDV) is worth Rs.3.6 lakhs under the two scenarios:

IDV
With NCB
Without NCB
Year
Value (Rs.)
NCB (%)
Premium
NCB %
Premium
Year1
360,000
0
11,257
0
11,257
Year 2
300,000
20
9,006
0
11,257
Year 3
250,000
25
7,036
0
11,257
Year 4
220,000
35
5,081
0
11,257
Year 5
200,000
45
3,784
0
11,257
Year 6
180,000
50
2,814
0
11,257

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