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What is No Claim Bonus (NCB) and how does it work?

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What is No Claim Bonus (NCB) and how does it work?

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If you own a bike (or any two-wheeler, for that matter), you may be familiar with the concept of bike insurance. While applying for or renewing your policy, you may have come across the term NCB or no claim bonus. Have you ever wondered what the no claim bonus in bike insurance is, though?

Before we dive into NCB, let’s take a step back and look at the big picture. Insurance, by itself,  is an important financial tool that can help reduce the financial impact in the case of adverse events. Whether it is for your car, your bike, or your health, having a valid insurance policy for each of these assets can help you avoid unnecessary out of pocket expenses. 

However, if you’re concerned about the steep premiums for insurance policies, then a no claim bonus has some good news in store for you as it can help reduce the premium of your insurance policy. 

What is No Claim Bonus (NCB) and how does it work? 

The No Claim Bonus (NCB) is essentially a discount that insurance providers offer if you do not make any claims during a given policy year. This benefit is available on the following kinds of policies —

  • Car insurance 
  • Bike insurance
  • Health insurance 

This discount is applicable on the insurance premium for the immediately succeeding year. So, if you make no claims on your insurance policy this year, you can get the benefits of your NCB next year, when you renew your policy. 

Let’s take up a quick example to see how No Claim Bonus works. 

  • Say you have an insurance policy where you’re required to pay an annual premium of about Rs. 10,000. 
  • Let’s assume that by the end of the first year, you haven’t made any claims. 
  • Your insurance provider decides to reward you for this by offering you a 20% discount on the premium for the second year. 

This discount that you receive from the insurer is what is known as the No Claim Bonus. Simple, isn’t it?

So, going by the terms mentioned above, your insurance premium for the second year would come down to about Rs. 8,000 [Rs. 10,000 - (20% of Rs. 10,000)]. As you can see, the renewal premium has reduced by Rs. 2,000, which can be a significant amount. This is how NCB helps make your insurance plan more affordable. 

Things You Should Know About No Claim Bonus 

Now that you have a good idea of what no claim bonus is, here are some key things that you need to be aware of. 

1. NCB is not applicable on the premium for the third party liability cover

In the case of motor insurance, the NCB discount is only applicable on the premium for Own Damage (OD) covers and not on third party liability covers. In India, Own Damage covers are included in comprehensive policies and not offered as standalone policies. So, this effectively means that the benefit offered by No Claim Bonus can only be used if you opt for a comprehensive motor insurance policy.

2. You can get up to 50% NCB

One of the many advantages of No Claim Bonus is that the rate of discount increases with every claim-free year. Here’s a table showcasing the rate of NCB across multiple claim-free years for motor insurance. 

Claim-Free Years

Percentage of No Claim Bonus 

After the first claim-free year 

20%

After two consecutive claim-free years 

25%

After three consecutive claim-free years 

35%

After four consecutive claim-free years 

45%

After five consecutive claim-free years 

50%

As you can see, the rate of NCB continues to increase till you hit the maximum cap of 50%, which is awarded to you only after the completion of 5 claim-free years. Beyond this, the rate of No Claim Bonus will not increase any further even though you may have more consecutive claim-free years. 

Do note that in the case of health insurance, the percentage of NCB is at the discretion of the insurance provider. 

3. You lose the NCB when you make a claim 

If you make an insurance claim during a year — even a small one — you stand to lose all the accumulated NCB benefits up until that point. So, let’s say that your accumulated No Claim Bonus percentage after three consecutive claim-free years is 35%. 

Now, during the fourth year, if you lodge an insurance claim, you will have to forfeit the accumulated NCB discount entirely. And you won’t be able to make use of it when renewing your insurance for the succeeding year. 

4. You can transfer your NCB 

In the case of motor insurance, the No Claim Bonus is offered not for the vehicle, but rather for the owner of the vehicle. So, when you sell your existing vehicle and purchase a new one, you don’t lose your accumulated NCB benefit. Rather, you can simply transfer it over to the new vehicle and continue to enjoy its benefits. 

5. You should always declare the correct NCB 

Declared the wrong No Claim Bonus at the time of renewal — whether by mistake or on purpose — can be  a costly mistake. Insurance companies may reject your insurance claim if they find that the declared No Claim Bonus is invalid or incorrect. So, ensure that you always make the right NCB declaration at the time of policy renewal. 

What is No Claim Bonus in Bike Insurance?

To be able to properly understand how No Claim Bonus works, it is important to take a good look at this concept from a bike insurance perspective. Here’s an example that can help. Check out the key assumptions we’re going to make.

  • Let’s say you buy a motorcycle and opt for a comprehensive bike insurance plan. 
  • The annual insurance premium that you’re required to pay comes up to Rs. 14,000. 
  • According to the terms of the policy, the premium for a third party liability cover comes up to Rs. 8,000, whereas the premium for Own Damage (OD) cover is Rs. 6,000. 

Year 1:

During the entirety of the first year of ownership, say you don’t raise any claims. On account of this, you become eligible for a No Claim Bonus of about 20%. This discount is applicable on the premium for the Own Damage (OD) cover of Rs. 6,000 alone, while the premium for the third party cover of Rs. 8,000 continues to remain the same. 

Year 2:

Accounting for this NCB discount, the second year renewal premium that you would have to pay would drop down by Rs. 1,200 to Rs. 12,800. By not making any claims during the first year of your ownership, you’ve managed to save Rs. 1,200 on your annual bike insurance premium.  

And as the claim-free years continue, the rate of NCB discount continues to increase until you reach the maximum cap of 50%. 

What is No Claim Bonus in Car Insurance?

Now that you’ve seen what No Claim Bonus in bike insurance is all about, it is time to take a look at the concept from the perspective of a car insurance plan. As with the previous segment, we’ll take up an example once again to better understand how it works. 

  • Let’s say you have owned a car which has a comprehensive car insurance plan. 
  • The annual premium comes up to around Rs. 18,000.
  • Out of this, the third party liability premium is Rs. 10,000 and the Own Damage (OD) premium is Rs. 8,000. 

Year 5:

Over the past 5 years of your ownership, say you’ve not made any insurance claims whatsoever. This has made you eligible for an NCB discount of 50%, which is the maximum discount. Also, this NCB is applicable on the OD premium of Rs. 8,000 and not on the third party premium of Rs. 10,000, which would continue to remain as is. 

Year 6:

Now, when you renew your car insurance policy for the 6th year, you will have to pay a total annual premium of just Rs. 14,000. Thanks to the accumulated No Claim Bonus of 50%, you can save Rs. 4,000 on your annual premium payment. 

What is No Claim Bonus in Health Insurance?

Now that you’re aware of what No Claim Bonus in car insurance is, let’s move on to health insurance. In health insurance, NCB is offered by an insurance provider in two different ways - as a discount on the premium or by way of a cumulative benefit. Here’s a quick look at both these NCB benefits. 

a. Discount on the Premium 

As with motor insurance, health insurance providers may also offer NCB as a discount on the renewal premium for every claim-free year. The way this works is very similar to how it does in motor insurance. 

b. Cumulative Benefit 

Alternatively, health insurers also offer No Claim Bonus by way of a cumulative benefit. Under this method, for every claim-free year, the amount of sum insured under the plan increases, while the premium continues to remain the same. 

Here’s an example to explain this better. 

  • Let’s say you have health insurance with a sum insured of about Rs. 5,00,000. 
  • The annual premium that you’re required to pay comes up to Rs. 20,000. 
  • If you don’t make any claim during the first year, your insurer may decide to offer a NCB at the rate of 20%. 
  • So, under this method, your sum insured for the second year automatically increases by 20% — to Rs. 6,00,000. 
  • However, you will have to continue paying the same annual premium of Rs. 20,000. 

Summing up 

As you can clearly see, No Claim Bonus can be quite useful when it comes to keeping your insurance premiums within an affordable range. The financial incentive offered by NCB also encourages you to drive in a safe and cautious manner at all times, and to take better care of your health. 

That said, here’s a tip that you can follow. If you’re concerned about keeping your accumulated No Claim Bonus intact, consider paying for small expenses out of your own pocket instead of lodging an insurance claim. This way, you get to keep your NCB intact and continue to reap the benefits offered by it. 

Frequently Asked Questions

1. What is the benefit of No Claim Bonus?

No Claim Bonus in motor insurance reduces the renewal premium if you don’t make any insurance claims during a particular year. In the case of health insurance, NCB may either offer the benefit of reduced premiums or increased sum insured.

2. What is the amount of No Claim Bonus?

The minimum rate of No Claim Bonus in motor insurance is 20% for the first claim-free year. The maximum rate of NCB is capped at 50%, which is awarded if you manage to get 5 consecutive claim-free years. In the case of health insurance, the rates are decided by the insurance provider. 

3. What is No Claim Bonus in motor insurance?

In motor insurance, No Claim Bonus is offered to you if you don’t lodge any insurance claims for your motor vehicle. It is the insurance provider’s way of rewarding you for driving safely and not getting into any accidents or mishaps.

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