Here’s how no claim bonus works in the Indian insurance industry

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NCB or No Claim Bonus is a kind of bonus or reward, given by the insurance company to the insurance holder for a claim-free year on the vehicle. If the insurer does not claim any insurance during an entire year, then the insurance company offers them a bonus, starting from 20% and go up to a maximum of 50%. For each claim-free year, the policyholder can earn this bonus.

What is NCB?

NCB stands for No Claim Bonus, which is applicable on your car insurance policy. It is a measure of how someone uses or drives the vehicle. No Claim Bonus is also known as No Claim Discount. Having an accumulated NCB discount can help the insurer to save up on their yearly premium. By nature NCB is cumulative. Almost all car insurance companies allow NCB transfer when someone renews car insurance from them instead of the previous insurer.

How does NCB work?

To get an idea about what is NCB and how someone can claim this bonus, some points are given below:

Eligibility

NCB is only generated when a policyholder has not claimed any insurance for their vehicle for the past one year. They can claim the bonus while renewing their insurance. 

Bonus acquired

There is a specific slab for the rate of discount that the policyholder can avail accordingly. They get this discount over their Insured Declared Value or IDV and the annual premium. The minimum discount rate starts from 20% and by the fifth year, the policyholder can get a discount of 25%, 35%, 45%, 50% respectively.

NCB Calculation

After getting an idea on NCB, a policyholder should know how this bonus is calculated. The NCB is calculated in a simple way. If the Insured Declared Value or IDV is Rs.5 lakh and the premium amount is Rs.15,000 annually and this is not claimed for that year, then the policyholder is eligible to apply for this No Claim Bonus during the renewal of the policy. Here, he or she gets a discount of 25% on their annual premium, that is Rs. 15000. That means when they renew the policy for the vehicle, they have to pay Rs. 11,250 for that year.

One who is eligible can even claim a 50% discount if the vehicle is over or above 5 years. But, the only condition is if they claim for any insurance for that particular vehicle, on that year NCB immediately drops down to zero. That means that insurance holder does not get any discount on next year while the renewal of the premium.

For instance, let’s say Mr X and Mr Y both have the same car. Both have to pay the same premium and the premium is Rs. 10,000 in the first year and in the second year they have to pay Rs. 12000. By the first year, Mr X does not claim any policy but Mr Y claims. So, in the 2nd year, Mr X will get a 20% discount on his payable premium amount which is Rs. 10000 and he have to pay Rs. 8000 for the 2nd year premium. But for claiming insurance in the very first year, Mr Y will pay Rs. 10000 as well. No discount will be provided to him. So, during the renewal of the policy, Mr Y will not be eligible for NCB.

Validity of NCB

If someone is not renewing the policy within 90 days from the date of expiry of an existing policy, then the NCB will be terminated.

To Conclude:

NCB can not be shared between the two policies. For transferring the NCB from an old car to a new car, an NCB retention letter is required. Moreover, if a policy is cancelled before completing the policy year then, NCB is also cancelled for that particular year.

Almost every car insurance company allows transferring NCB when the policyholder is transferring or renewing their policy to some new insurer instead of the old one. For more information, one can visit https://www.turtlemint.com/car-insurance/articles/what-is-ncb-and-how-to-retain-it-in-your-car-insurance-policy/

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