The Significance of No Claim Bonus in Insurance

With the increase in competition in the insurance market, insurance companies are competing to stay ahead of the game by offering perks and value-addition on their products. The discounts offered during the festive seasons are noteworthy, so are the benefits offered to long-term customers in the form of loyalty discounts and No Claim Bonuses. A No Claim Bonus (NCB) is an attractive discount available under motor and health insurance plans. It helps in shaving off a significant amount from your insurance premium. Let us take a look at how it works and how you can build yours. How can I get a No Claim Bonus? No Claim Bonus is offered by car insurance companies to customers who refrain from raising any claims in a policy year. This benefit can translate into a significant reduction in the renewal of premium. It is possible to accumulate the NCB under the insurance policy over a period of time so that premium discounts are amplified. In car insurance, diligent drivers who do not get involved in accidents get rewarded through a No Claim Bonus. Most insurance companies allow you to accumulate the NCB for up to 5 years when working out a discount. The rate at which one accrues the bonus is as shown below: The above table indicates that if a car owner does not raise any claims after 1 policy year, he/she is eligible to receive an NCB that can bring down the car insurance renewal premium by 20%. It should be noted that this is applicable only to the own-damage part of the premium, not the third-party liability premium. In the health insurance domain, NCB is also referred to as cumulative bonus. It is offered under indemnity-based health insurance policies. This is how it works:

• If the policyholder does not raise any claims in a policy year, there is an increase in the sum assured by at least 5%. This bonus increases progressively for each claim-free year. The cumulative bonus can be accumulated under the policy for up to 10 years.
• Some insurance companies offer this benefit in the form of a discount on the renewal premium. It is also found that certain insurers offer the NCB as a combination of premium discount and extended cover.
• The actual amount of cumulative bonus that the policyholder will be liable to receive is listed in the fine print of the health insurance policy. There are no year-wise bonus slabs in health insurance as seen under motor insurance. However, the maximum amount offered can go up to 50%.
• In case the policyholder does not renew the policy, he/she is liable to lose the accrued NCB.
• The rate of increase in the NCB each year varies from insurer to insurer. This value is usually 10% for most insurers.

  How is my NCB affected by a claim? If the customer has accumulated NCB under his motor insurance policy and then goes on to raise a claim, the accrued NCB will be reset to the initial value. So, at the time of a claim, you should assess whether the amount you stand to gain as claim payout is much higher than the NCB that you will lose. If so, you can go ahead and record a claim; otherwise it makes more sense to pay for the damage repair yourself. Let us take another scenario in which your insured car was hit by another vehicle. If it is proved that you are not at fault, your insurance provider will be able to reclaim the payout from the other driver’s insurance company. This way, you are effectively claiming under the third-party insurance of the other driver. In this case, your insurer may not deduct your NCB as the accident was not due to your negligence. In health insurance, ongoing cumulative bonuses will be nullified after a claim. This implies that the policyholder’s sum insured will revert back to the original value. If the company offers NCB in the form of discounts, the policyholder will be required to pay the standard premiums. Some insurance companies do not completely nullify the NCB; instead they reduce the discount. So, if you were expecting a 20% discount the following year, you will only receive 10% due to the claim. Can I transfer my NCB? In motor insurance, it is possible to transfer your NCB when you shift from one insurer to another. This also holds true when you sell your insured vehicle and buy a new car. You should remember that the NCB is tagged to the policyholder and not the vehicle itself. It is not possible to transfer the NCB between people, as it defeats the entire purpose of the benefit. However, some insurers allow the transfer of NCB to the legal heir in case the policyholder faces death. To transfer the NCB, you will have to contact your current insurance company and request for an NCB retention letter. This certificate is valid for up to 3 months, within which it should be attached to another car insurance policy in your name. In case this is not done, you stand to lose the accrued bonus. In health insurance, it is possible to transfer the cumulative bonus. This depends on the type of bonus the insurer offers, i.e., whether it is in the form of a sum assured hike or premium discount. Insurance companies may also specify certain conditions for the transfer of NCB. This includes specifications such as allowing transfer of the complete NCB up to the age of 45 years, but only 50% of the NCB for those above the cutoff age. So before shifting the insurance company, you should check the regulations regarding the NCB transfer and act accordingly. Points to note Although the concept of No Claim Bonus is not relevant to life insurance, many insurance companies offer term plans with return of premium (TROP). If the insured survives till the end of the policy tenure, he/she receives the total premiums paid under the plan. This is a very attractive proposition to a customer who desires both protection and savings under the same plan. The price that one has to pay towards such a plan, will however, be higher than that of a basic term life plan. The advantage of buying term insurance is essentially the low premium factor, and a person opting for TROP will not be able to enjoy this benefit. So you should thoroughly assess your insurance needs and make a judicious insurance purchase decision.