How to Calculate No Claim Bonus for Car Insurance?

As a car owner, you must know about the compulsory requirement to have an insurance cover, besides the registration and PUC for your vehicle. This regulation laid down by the Motor Vehicles Act makes it a legal requirement for not just car owners, but all types of vehicle owners in India—be it privately owned or for commercial purposes. When you buy car insurance online, the policies are divided into two broad categories—a third-party cover and a comprehensive insurance cover. A third-party policy is where only the liabilities payable by the policyholder are covered. Such liabilities may arise due to an accident causing injury to a third person or property damage. On the contrary, comprehensive plans provide not only for such liabilities but also for damages to the policyholder’s car. But other than offering a financial shield for damages to your vehicle, a comprehensive policy offers other benefits like the No-Claim Bonus (NCB). It is a renewal benefit that the insurer offers for not raising an insurance claim. Since the insurance company need not provide any compensation when claims aren’t made, this renewal benefit is awarded to the policyholder. Thus, by not making a claim, you can avail of a concession in your renewal premium.

What is a No Claim Bonus (NCB)?

A No Claim Bonus (NCB) is a discount that insurers offer policyholders for not filing any claims during the policy period. It accumulates over time and can provide significant savings on your insurance premium. The more years you drive claim-free, the higher your NCB, which can be as much as 50% after five consecutive years of no claims. However, it’s important to note that the NCB applies only to the own damage component of your policy, not the third-party liability coverage.

When Does the No Claim Bonus Get Cancelled?

The No Claim Bonus feature can be cancelled or lost if:

1. You file a claim during the policy term. Once a claim is made, the NCB is not applicable during the next renewal.
2. You fail to renew the policy before its expiry, which could result in the loss of the NCB.
3. If the car is sold or transferred to someone else and the policyholder does not maintain the vehicle ownership or continuity of the policy.

Benefits of No Claim Bonus

• Reduced Renewal Premiums – Enjoy lower premiums during policy renewal after maintaining a claim-free record.
• Cost Savings Over Time – The discount accumulates each claim-free year, leading to significant financial savings in the long run.
• Incentive for Safe Driving – Encourages cautious driving habits by rewarding accident-free years.
• Increased Policy Value – A higher bonus may improve the overall value and attractiveness of your insurance policy.
• Competitive Advantage – A strong No Claim Bonus can offer better bargaining power when switching insurers or renewing policies.

Terms and Conditions of a No Claim Bonus

While the No Claim Bonus is an attractive feature, it comes with specific terms and conditions, mentioned below:

1. An NCB is attached to the policyholder, not the vehicle, meaning it can be transferred if you buy a new car.
2. If you make even a single claim during the policy period, you will forfeit the NCB for that year. However, if you have an NCB add-on, you can protect your accumulated bonus despite making a claim.

What is a No Claim Bonus Add-on?

An NCB Add-on is an optional cover you can purchase with your car insurance policy to protect your bonus. In case of a minor claim, this add-on allows you to retain your accumulated NCB, ensuring that your premium discount remains intact during the car insurance renewal process. This is particularly useful for drivers who want peace of mind without sacrificing their hard-earned discount.

How Can You Protect Your No Claim Bonus?

One of the best ways to protect your No Claim Bonus is to drive responsibly and avoid making unnecessary claims. Opting for an NCB Add-on ensures that minor damages don’t affect your accumulated bonus. Additionally, consider paying for minor repairs out of pocket instead of claiming insurance. By maintaining a claim-free history, you can enjoy a considerable discount on your insurance premiums.

How to Transfer the NCB to a New Car?

If you're purchasing a new vehicle, transferring your No Claim Bonus from your old car is simple. Since the NCB is linked to you as a policyholder, not your vehicle, the bonus can be carried over to your new insurance policy. For example, if you’ve been enjoying Maruti Suzuki car insurance benefits with an accumulated NCB, you can transfer it when you upgrade to a new car.

Impact of No Claim Bonus on Insurance Premiums

The No Claim Bonus significantly impacts your car insurance premium by reducing the cost of the own damage section of the policy. Over time, this discount can range from 20% after the first year to a maximum of 50% after five claim-free years. However, making a claim will reset your NCB to zero unless you have an NCB Add-on to protect it. Therefore, the longer you drive claim-free, the greater your savings on your insurance premiums.

How to Maximise Your No Claim Bonus?

Maximising your No Claim Bonus involves several strategies, such as:

1. Drive carefully and responsibly to avoid accidents and minimise the need to file claims.
2. Consider purchasing an NCB Add-on to protect your bonus in case of minor accidents.
3. Think twice before making small claims. Sometimes, it's more cost-effective to pay for minor repairs out of pocket and preserve your NCB for larger savings on your next car insurance renewal.

Common Mistakes in NCB Calculation

One common mistake while calculating No Claim Bonus is thinking that it only applies to the own damage section of your insurance, whereas it doesn't. Another mistake is assuming that making a small claim won’t affect the NCB. Unless you have the NCB Add-on, any claim will reset your accumulated bonus. Ensure that you accurately understand the terms of your NCB to maximise its benefits.

Aspects of No Claim Bonus (NCB) That You Need to Be Aware Of

1. NCB Reduces OD Premium

The No Claim Bonus can reduce the Own Damage (OD) premium for your car insurance. However, the maximum discount you can receive is 50%, and this is only possible after driving claim-free for five consecutive years. After reaching this limit, even if you continue to remain claim-free, you will not be eligible for an NCB higher than 50%.

2. NCB Can Be Transferred to Your New Car

The No Claim Bonus is personal and not linked to your car. This means that if you buy a new car, you can transfer your existing NCB to the new vehicle. However, the new car must fall under the same vehicle class as the one on which the NCB was earned. Additionally, NCB can only be transferred to another person in the event of the car owner's death, provided the vehicle is handed over to a legal heir. The NCB must be transferred to the legal heir within 90 days.

3. NCB Does Not Apply to Third-Party Premium

The No Claim Bonus is not applicable to the third-party insurance premium. It only reduces the premium on your Own Damage (OD) cover. Therefore, when calculating your NCB, remember it is applicable only on the OD portion of the premium, not on the third-party liability portion.

4. Incorrect NCB Declaration Can Lead to Claim Rejection

Declaring an incorrect NCB can lead to serious consequences, including the rejection of your future insurance claims. Always ensure that the NCB details you provide are accurate, as a wrong declaration can invalidate your coverage or lead to legal complications.

How is No Claim Bonus in Car Insurance Calculated?

Comprehensive car insurance plans have three components—a third-party cover, an own damage cover, and a personal accident cover. Of these three insurance covers, a third-party cover is the minimum required insurance coverage for which the premiums are decided by the Insurance Regulatory and Development Authority of India (IRDAI). However, for own-damage cover, the premium is decided by the insurance company. Thus, any markdowns by way of no-claim bonus are calculated on such own-damage cover. The amount of concession is defined as a percentage of the own-damage premium and starts at 20% and increases up to 50% with consecutive claim-free policy periods. You can visit the official website of IRDAI for further details. * Standard T&C Apply For instance, you do not raise any claim during a policy tenure, and so, the insurer offers a renewal concession of 20% on the own-damage premium. Similarly, this amount increases with a second consecutive claim-free policy period to 25%, followed by 35%, 45%, and 50%, after three, four, and five consecutive claim-free policy periods. However, after five policy periods, this percentage is capped at 50% only. A car insurance calculator is a handy tool that can help you know the renewal benefit in your insurance policy. This is summarised in the following table:

* Standard T&C Apply Let’s say Mr Rakesh buys a comprehensive policy with ?20,000 as the total premium, of which ?3000 is the third-party component. The balance amount of ?17,000 is allocated towards own-damage premium. Now, consider that Mr Rakesh makes no claims for five consecutive policy periods. He will accumulate a no-claim bonus of 50% of the own-damage premium. This will effectively bring down the own-damage premium to ?8,500. This way, the total premium of ?11,500 will be required, instead of ?20,000, saving a significant amount at renewal. * Standard T&C Apply With the significant benefit of savings in car insurance prices, a no-claim bonus is a noteworthy feature of comprehensive car insurance policies. Moreover, an NCB can be transferred to a different insurance company so that you can avoid worrying about losing its benefits when changing your insurer. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.

Conclusion

In conclusion, understanding and utilising the No Claim Bonus effectively can result in substantial savings on your car insurance premiums. By driving responsibly, avoiding unnecessary claims, and protecting your bonus with an NCB Add-on, you can maximise this benefit during your car insurance renewal. Whether insuring a Maruti Suzuki or any other vehicle, the NCB plays a vital role in reducing your overall insurance costs. For more information on how to calculate and protect your NCB, visit the official website of Bajaj Allianz General Insurance Company.

FAQs

What is the maximum NCB on car insurance?

The maximum No Claim Bonus (NCB) on car insurance is typically 50%, offered after five consecutive claim-free years.

How much is the No Claim Bonus, and how to calculate NCB insurance?

The NCB starts at 20% after the first claim-free year and increases to a maximum of 50% after five years. To calculate, multiply the own damage premium by the applicable NCB percentage.

How does No Claim Bonus impact my insurance premium?

The No Claim Bonus reduces the own damage section of your insurance premium, resulting in lower overall insurance costs.

Can I transfer my No Claim Bonus to a new insurance provider?

Yes, you can transfer your NCB to a new insurance provider during your car insurance renewal by providing an NCB certificate from your previous insurer.