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 reward given by insurance companies to policyholders who do not file any claims during the policy term. It is a discount on the Own Damage (OD) premium for the subsequent year. The more years you drive safely without making a claim, the higher your NCB discount will be, up to a maximum of 50%. This discount helps reduce the overall cost of renewing your car insurance.

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.

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 to Calculate NCB?

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:

Consecutive claim-free policy tenure	Percentage of markdown on own-damage premium
One claim-free period	20%
Two consecutive claim-free periods	25%
Three consecutive claim-free periods	35%
Four consecutive claim-free periods	45%
Five consecutive claim-free periods	50%

  * 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.