How Is No Claim Bonus Calculated In Car Insurance Policies?

No claim bonus in car insurance is a discount that the insurer offers to the policyholder for going through a term year without making any claims. It
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Learn How to Calculate No Claim Bonus while Buying Car Insurance Policy
Learn How to Calculate No Claim Bonus while Buying Car Insurance Policy

Car insurance is one of the most essential documents that you need for your vehicle in India. While having the minimum required coverage helps you comply with the law, investing in a comprehensive car plan gives you better protection and additional benefits, such as the No Claim Bonus (NCB). On this page, we will discuss what no claim bonus in car insurance is and how it is calculated.

What is no claim bonus in car insurance?

When you opt for a comprehensive car insurance policy, you not only get elaborate protection for your four-wheeler but also tons of additional benefits, such as the No Claim Bonus (NCB). It is a special type of percentage-based discount on your car insurance premium. It is awarded by insurers to policyholders for driving their car properly and not filing any motor insurance claims for the vehicle during the policy period. So, following a successful claim-free year, when you renew your policy, you will be able to avail of the NCB benefit and get a significant discount on your car insurance premium. This means it allows you to enjoy the same extent of coverage and benefits at a lower cost.

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The No Claim Bonus in car insurance applies after every claim-free year. Generally, for the first claim-free year, the insurer offers an NCB of 20%. From this point onwards, in the consecutive policy years where a claim hasn’t been filed, you may be awarded an additional 5 to 10% discount upon timely renewal. This bonus can increase with subsequent years until the fifth and final claim-free year is reached, at which point the NCB discount on your car insurance premium is capped at 50%.

How is no claim bonus calculated in car insurance?

Following the first claim-free year, you will be able to enjoy the NCB discount on your car insurance premium when renewing the plan for the second year. The No Claim Bonus currently starts at 20% and can thereafter go up to 50% with consecutive claim-free years. Here is a chart illustrating the NCB discount as per consecutive claim-free years for your understanding;

Policy yearsNo Claim Bonus discount
After 1st claim-free year20%
After consecutive 2 claim-free years25%
After consecutive 3 claim-free years35%
After consecutive 4 claim-free years45%
After consecutive 5 claim-free years50%

A very important thing to note here is that the No Claim Bonus (NCB) is only calculated on the own damage component of the car insurance plan’s premium and not the third-party component.

Now, the following is an illustrative example of how NCB is calculated in car insurance policies during renewals;

Suppose, Mr. Verma has invested in a comprehensive car insurance policy with a premium of INR 25,000, out of which the own damage component costs INR 23,000. After successfully going through the first claim-free year, Mr. Verma goes on to renew the same car insurance plan while availing of the 20% NCB discount. In this case, he is eligible for an INR 4,600 discount on the premium of his car insurance plan. For the second consecutive claim-free year, the NCB discount will become 25%, where Mr. Verma will be eligible for an INR 5,750 discount on the car insurance plan premium during renewal. In this way, he can accumulate up to 50% NCB for a maximum of five consecutive claim-free policy years, where he will be eligible for an INR 11,500 discount on the car insurance policy premium.

Advantages of NCB in Car Insurance policies

There are numerous benefits of no claim bonus in car insurance policies. Some of the key advantages are;

  1. Better savings:
    The no claim bonus in car insurance starts at 20% and can increase with each consecutive claim-free policy year for up to 50%. This offers attractive discounts on car insurance premiums during policy renewals, saving you a considerable amount of money in the process.
  2. Great coverage:
    With no claim bonus, you can get the same elaborate protection that you paid in full for the first term year for your car at up to 20-50% lesser cost. This means you will be able to enjoy comprehensive coverage despite paying less with the same plan.
  3. Promotes responsible driving:
    The NCB works as a reward for driving safely and responsibly, which can reduce the risk of accidents on the road. No accidents means no need for claims, hence better NCB discounts.
  4. Awarded to the policyholder:
    A great thing about the no claim bonus in car insurance is that it is awarded to the policyholder and not the car. Hence, even if the policyholder sells their car, the NCB stays with them and becomes usable for the next car they buy.
  5. Easily transferable:
    If you want to switch insurers for your car insurance plan, you can easily transfer your accumulated NCB to the new one. For this, you need to obtain the NCB certificate from your previous insurer and submit it to the new insurer during the switch.

What can lead to the termination of NCB?

There are certain instances where the no claim bonus in car insurance policies can be terminated. For example;

  1. If the policyholder makes an insurance claim during the policy term.
  2. If the policyholder fails to renew their car insurance plan within the stipulated time after it has expired.
  3. If the policyholder fails to transfer the accumulated NCB to a new car or another insurer within the stipulated time frame.

Additional things to note about No Claim Bonus

While on the subject of no claim bonus in car insurance, here are some additional pointers that you should know about this feature;

  1. When calculating the NCB discount, note that it is applicable to the own damage component of the car insurance policy premium and not the third-party component.
  2. When transferring your NCB to a new insurer, make sure to correctly declare your NCB percentage. If the declared value is found to be incorrect, you may lose the accumulated benefits under the plan.
  3. If you have opted for an NCB protector add-on with your comprehensive car insurance plan, you may be able to make a certain number of claims within the policy term without losing the benefit of the accumulated no-claim bonus. The number of claims allowed under this add-on varies from insurer to insurer.
  4. The benefit of no claim bonus in car insurance is not available for third-party-only plans.
  5. In case the vehicle meets with an accident or is stolen, the accumulated no claim bonus may be affected. You should check the policy wording from the insurer regarding details on this matter.
  6. For NCB transfer to a new insurer, you will need to notify your present insurer and request an NCB certificate.

Conclusion:

No claim bonus is a great way to save up on the car insurance premium without compromising on the extent of elaborate protection. Policyholders can avail of this discount during renewals following claim-free term years. The discount starts at 20% for the first claimless year and can build up to 50% for consecutive claim-free years. If you want the ability to raise one or two claims during the policy term while protecting your accumulated NCB benefit, consider investing in an NCB protection add-on cover with your comprehensive car insurance plan.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

Note to the reader: This article is part of HT Auto's paid consumer connect initiative and is independently created by the brand. HT Auto assumes no editorial responsibility for the content, including its accuracy, completeness, or any errors or omissions. Readers are advised to verify all information independently.

First Published Date: 24 Jan 2025, 11:50 AM IST
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