NCB or No Claim Bonus is probably the most attractive addition that any motor insurance, particularly car insurance policy, provides for its customers. This bonus actually serves as a reward for policyholders who enjoy responsible driving without claiming anything throughout the term of the policy. It, in turn, fosters a sense of safe and defensive driving while bringing huge premium savings in the renewal of an insurance policy.
What is No Claim Bonus in Insurance? How do you exactly work it out? How is it calculated? What procedure needs to be followed to calculate and maintain it? Its relevance to Motor insurance, especially Auto or Car insurance? Some of the questions can be seen as “What does NCB in auto insurance stand for?” or “How can I calculate NCB using a no claim bonus calculator?”
What is NCB in Insurance?
NCB, or No Claim Bonus, is a discount a policyholder gets for not raising a claim during the preceding policy term. It is more of an incentive for the no claim record. The longer you go without raising a claim, the better your NCB will be; therefore, the discounts on the premium offered to you after renewing the insurance will be bigger.
In plain terms, NCB only applies to the own damage OD portion of a motor insurance policy and not the third-party liability portion. That means while you relish the reduced premiums on the damage protection to your vehicle, the liability cover for any third party damage or injury is not affected.
NCB is cumulative in nature, that is the discount keeps building up with each consecutive claim-free year. The normal structure of such a discount is as follows:
| Years Without Claims | Discount Rate |
|---|---|
| 1 year | 20% |
| 2 years | 25% |
| 3 years | 35% |
| 4 years | 45% |
| 5 years and above | 50% |
This in itself makes NCB one of the most exciting features of a motor insurance policy, thereby allowing you to avail yourself of a reward system that can significantly lighten your financial burden at the time of renewal.
No Claim Bonus Meaning in Insurance: How It Works
To understand the meaning of NCB in the context of insurance, one needs to know how it functions in the context of a car insurance policy. Every time you buy or renew your car insurance, two important components apply to it, namely, own damage and third party liability. NCB applies only to the former.
The no-claim bonus was essentially designed as a motivator for prudent behavior; it rewards the insured with a premium discount when the insured does not make any claims. Here’s how it works:
Policy Purchase: When you buy your policy you pay for the whole year premium which covers both OD and third-party.
Claim-Free Year: Since you don’t raise any claim during the year, then you earn NCB
Premium Discount at Renewal: While renewing the policy, your premium is calculated by adding the NCB minus the percentage reduction amount of OD based on the claim-free years.
Claims Impact: In case you raise a claim during the validity period of the policy you will lose the NCB that you have accrued.
However, few insurance companies offer an add-on known as NCB protector that enables you to retain the bonus even after you raise a handful of claims.
How is No Claim Bonus Calculated?
Now that you’ve known the insurance abbreviation NCB, let’s learn how No Claim Bonus is actually calculated and affects your premium. Remember again that NCB percentages accumulate each year you don’t file a claim; knowing the formula behind it will help you really bank in more savings.
Let’s consider an example. Suppose the own damage premium of your car insurance is ₹20,000 and you have never filed any claim for the last three years. Then NCB for three years of accident-free record is 35%. Here are the calculations:
| Description | Amount (₹) |
|---|---|
| OD Premium | ₹20,000 |
| NCB (35% of ₹20,000) | ₹7,000 |
| OD Premium after NCB discount | ₹13,000 |
Hence, the surcharge you have to pay at the renewal of OD cover would be ₹13,000 instead of ₹20,000 through NCB.
It is pretty clear that maintaining a no claim record fetches financial gains as well. The more years you pass, the discount increases up to 50% which will get you half of the premium on your own damage premium.
Keep in mind that for the precise calculation, most insurance companies will provide you with a no claim bonus calculator that helps you get an approximation of the discount you are to receive according to the details of your policy.
Why No Claim Bonus on Motor Insurance Matters
Only a car owner would be able to understand what NCB in insurance is. Car insurance is must but it sometimes becomes too heavy on the pocket with hefty premiums. NCB helps reduce this burden, encourages safer drives, and rewards claim-free policyholders.
Key Benefits
Lower Premiums: As mentioned earlier in the section, NCB can make your own damage premium much cheaper, whereas simultaneously it can also make your car insurance affordable for you.
Long-term savings- The more time that elapses before you make a claim for compensation, the more substantial are the discounts. Thus, this means massive long-term savings.
Transferability: NCB is attached specifically to you as the policyholder and not to the car. So in case you sell your vehicle and buy a new one, you can transfer your accrued NCB
Promotes Responsible Driving: NCB is paid only in case of claim-free years. The possible reward situation encourages driving with a much better sense of responsibility on the road.
How To Calculate No Claim Bonus: A Step-by-Step Guide
Now that we know what NCB and how No Claim Bonus is calculated, it is time to know the step-by-step procedure for calculating no claim bonus, manually or with a no claim bonus calculator.
Starting with the OD Premium: Note the premium charged for your vehicle’s own damage cover, leaving out third-party liability premium amounts.
Check NCB Percentage: You will find your insurance company offers the NCB percentage based on your claim-free years. This normally increases as follows:
| Years | Discount Rate |
|---|---|
| After 1 year | 20% |
| After 2 years | 25% |
| After 3 years | 35% |
| After 4 years | 45% |
| After 5 years | 50% |
Apply NCB: Multiply OD premium by NCB percentage to get your discount.
Balance Premium: Subtract your NCB from your OD premium to get your rebate premium for the subsequent year.
A no claim bonus calculator saves time by facilitating proper calculations with exact output in just a fraction of second.
Car Insurance NCB Benefits
No Claim Bonus (NCB) has many benefits to car insurance policy buyers. Here are a few of them:
Cost Benefits: NCB offers the highest premium cost saving when the policy is renew. A claim-free year will always attract discounts from as low as 20% to as high as 50% on own damage cover for the policyholder. This will save a lot of money in the long run.
Encouragement for Safe Driving NCB motivates safe driving. A number of drivers will be careful on roads as they know that their premium amount is going to reduce, provided it is free of claims.
Retain NCB across vehicles: NCB is tied to the policyholder and not to the vehicle. That means if you sell your existing vehicle and purchase a new one, your saved NCB can be transferred to the new policy, so your good driving record stays intact.
Long-term Implications: Savings from NCB would gradually accumulate over time, translating into significant savings on car insurance premiums. Long-term policyholders can actually reduce their general insurance cost to a very low minimum by maintaining a claim-free record for such long periods.
No Impact on Third-Party Liability: NCB is applicable only to the own damage segment of a policy. This, therefore, doesn’t impact your third-party liability cover. Hence, you can raise your third-party damages claims without losing the NCB.
When Does The No Claim Bonus Get Canceled?
The No Claim Bonus can be cancel in certain conditions, which the policyholders need to be aware of:
This is the primary reason you will lose your NCB. You raise a claim during the policy term. In case you make a claim, you lose all the bonus earned for that particular year. However, through an NCB protector add-on, you do not lose your bonus even when you raise a few claims.
Policy Lapse: If your insurance policy is allow to lapse and you do not renew it within the grace period, you may lose all the NCB earned. As usual, insurance companies allow a particular time wherein you can renew your policy and not lose your bonus.
Switch of Insurers: When you switch to a different insurer, make sure you carry your NCB forward. Your bonus will go entirely in vain if not carried forward correctly. You should always let your new insurer know that you have past NCBs accumulated.
Cancellation of Policy: When you cancel the policy before expiry of the term, the NCB earned will be lost with it. It is very crucial to think twice before canceling.
Can No Claim Bonus be Protected?
Yes, No Claim Bonus can be protect through an add-on called NCB protector. This feature allows the policyholder to retain their NCB even if they raise a claim during the policy tenure. Here are some key points to be consider about NCB protection:
Limited Claims Allowed: Most NCB protectors allow two-three claims, depending upon the insurance companies, without one losing their bonus built up.
Extra Cost: The NCB protector definitely has some additional cost. The policyholder needs to judge whether the bonus saved is more than the extra premium for this add-on.
Available From All Insurance Companies: Not all insurance companies offer the NCB protector. So, always enquire from your insurance provider if they can offer you this protector either when buying or renewing your policy.
Continuous Rewards: Once you protect your NCB, you will be able to continue enjoying the benefits of lower premiums as long as you like, even if it has the bad experience that makes the claim necessary.
Things About No Claim Bonus That You Should Know
Even though the No Claim Bonus is the most exciting feature of car insurance, there are a few things you should know :
The No Claim Bonus is vehicle-specific: While NCB technically gets attach to the policyholder, there may be some rules that certain companies have with regard to transferring NCB between vehicles. Always check in with your insurance company to confirm what their policies are on the matter.
Expiry Period: If you allow your insurance to lapse after the specified grace period (usually 90 days), you stand the risk of losing your NCB. Don’t let that happen. You should never fail to note your renewal dates and never fall behind.
Calculation Variations: Each insurer is suppose to give its own means of calculation as far as NCB is concern. First, ensure you clarify the NCB structure with your insurer. In particular, you want to know whether it accumulates over the years and under what conditions.
This also means that filing a claim can affect your NCB besides having an impact on your future premium rates. The number of claims often gives insurance companies reason to believe that they have taken on more risk, thus the renewal premiums may rise following the number of claims lodged.
Annual Review: Most insurance companies review the NCB every year and can change the bonus upon individual driving habit or claims history changes. Keep checking your policy annually so you understand how much you are getting.
How NCB Affects Premiums
The amount of No Claim Bonus determines the premium to be paid by an individual through a car insurance policy. Here’s what NCB has to do with your premium charges:
Percentage discount on premium:
NCB generally gives a percentage discount on own damage premium when you are renewing the policy. It can range anywhere from a 20 percent discount after one claim-free year. Then it can go high as around 50 percent discount in case a person succeeds in managing the multiple claim-free years. That means the more years the time would pass without putting a claim, the higher amount you would save.
Cumulative Benefit:
NCBs are typically cumulative by nature. For instance, with a 20% reduction in NCB based on one year of an accident-free claim, another 5 or more percentage points would accrue as you mark another accident-free year. It cumulatively boosts the tendency of customers to stick with their policy for a long time and enjoy safe miles.
Overall Cost of Insurance:
Essentially, NCB brings the overall cost of your insurance down. Even when the premium for the year appears to be high, the amount you save from NCB can make it economical in the long run. It becomes a very important aspect of deciding on your insurance policy.
Factors Determining Eligibility to NCB
Not all qualify for No Claim Bonus. Some factors can determine eligibility to NCB for an individual:
Types of Claims Made: Not all claims affect your NCB. Normally, third-party liability claims will not increase your NCB. Understanding what constitutes a claiming incident against your bonus is crucial to maintaining your discount.
Policy Terms and Conditions: Each insurance company has its terms and conditions regarding NCB. It is, therefore, important to understand what fine prints exist under your policy about how your insurance company calculates NCB and under what circumstances your NCB can be forfeite.
Previous Driving Record: Your eligibility for NCB depends on your previous driving record. An insurance company may take into consideration how many accidents occurred in the past or traffic violations while calculating NCB value. In fact, claims history also plays a huge role here.
Maximization of NCB Strategies
To get the maximum benefit for your No Claim Bonus, consider the following strategies.
Do not make unnecessary claims:
What might be tempting to claim on the small damages, exercise caution and think of the loss of NCB you will incur. In some cases, it’s beneficial to have the minor repairs done out-of-pocket.
Regular Review of Policy:
Periodical review of your policy will keep you abreast of all the changes of the regulatory NCB. You should also stay updated regarding any new information from your insurer related to NCB calculation and eligibility.
Installation of Safety Devices:
Installing safety devices such as anti-lock brakes, airbags, and tracking devices will minimize the chances of accidents in the long run, thus giving the customer a claim-free history as well. Extra discounts are even provided by different insurance companies for vehicles with superior safety features.
Compare Insurers:
The most effective way to choose an appropriate insurer is by comparing many and choosing that best offers the most beneficial NCB discount reward amongst other benefits that you feel fulfills your requirement.
Understanding NCB helps policyholders bargain for better premiums on renewal.
Negotiation Leverage:
If you have a clean driving record, you can negotiate premiums with your insurer by utilizing your NCB. You’ll then tend to get a claim-free history, which will assist you in acquiring cheap rates.
Switch Insurer:
If you plan to shift to another insurer, then all the NCB you have gathered so far will serve as an effective bargaining tool. Simply apprise your new insurer of your NCB and grab the maximum discount offered on your new policy.
Reviewing Coverage Needs:
At the time of renewal, review your coverage needs against the need for NCB on the overall insurance costs. You may have to enhance the coverage or provide various additional features and could utilize the discount coming with NCB.
Common Myths About NCB
There are a number of common misconceptions policyholders have regarding No Claim Bonus as described above:
Myth: NCB is applicable only on two-wheeler insurance: Although NCB is the most common bonus eligible on two-wheeler insurance, many two-wheeler insurers provide similar bonus for claim-free years on their policies.
Myth: NCB is lost instantly after making one claim: Yes, you will lose your NCB if you make a claim; however most of the insurers provide bonus protection through which you can retain the bonus after a limited number of claims.
Conclusion
One of the most effective tools for reducing car insurance premiums, saving your money is the No Claim Bonus. Encouraged by responsible driving, NCB grows to become a bigger bonanza with each passing year as policy holders avoid claiming and enjoy huge discounts, and finally, this guide covers everything from what is NCB in insurance to how no claim bonus is calculate to using NCB to save money on motor insurance.
One can compute the no claim bonus using a no claim bonus calculator. So long as one maintains safe driving practices, ensuring ultimate savings on motor insurance policies.