How Does No-Claim Bonus Impact Your Car Insurance Premium?

Written By DNA Web Team | Updated: Dec 07, 2023, 12:47 PM IST

The no-claim bonus is a reward you earn for not making claims.

The no-claim bonus (NCB) is a very interesting concept in motor insurance. It is a bonus, or a reward, that you earn for being a good driver. When you drive safely, you do not get involved in any accidents throughout the policy year. As a result, you don't make any claim and because of this, you earn the NCB. So, how exactly does this reward impact your car insurance premium? Take a look at this article to know more.

Understanding the concept of no-claim bonus

As mentioned above, the no-claim bonus is a reward you earn for not making claims. The insurance provider offers the bonus in the form of a discount on the premium for the following year. The NCB accumulates each year and if you manage to stay claim-free for several years, you can get a discount of up to 50% on your car insurance premium. This leads to huge savings and you get your motor insurance coverage at a lower cost. Here’s a look at the rates per year for your NCB:

No of claim-free years | Percentage of NCB earned

1 year -  20%

2 years - 25%

3 years - 35%

4 years- 45%

5 years - 50%

Why is it offered?

The motor insurance company takes on a large risk by offering you a car insurance cover. If you make a claim, they have to pay you a hefty sum of money. However, if they understand you are a cautious driver and do not make too many claims, they lower the risk factor associated with you. This is done in the form of an NCB offering.

The NCB is also offered to discourage the policyholders from making petty claims. If the claim amount is small and manageable, it is advisable to pay it from your own pocket. The insurance company is also saved from the hassle of verifying the claim, paying it out, etc. To prevent the policyholders from making claims every now and then, the insurers offer the NCB.

Advantages of the no-claim bonus

There are several advantages of the no claim bonus in car insurance. Some of them are:

1. Reduction in premium

One of the main advantages of the no-claim bonus is that it reduces the overall car insurance premium. When you seek to purchase motor insurance, you always look out for the ways in which the premium burden can be reduced. From using online calculators to comparing, there are many tricks to use. However, simply getting the NCB deducted from your premium is one of the best and most convenient ways to have your car insurance premium reduced! So, be a good driver and hold yourself back from making petty claims. This will help you to get the NCB and also build it up and after a few years, you can get the car insurance plan at half the rate!

2. Transferable in nature

Another major benefit of the NCB component in motor insurance is that it is transferable. Since the insurer acknowledges the driver through the NCB offering, the accumulated bonus can be transferred if you sell your existing vehicle and buy a new one. This will help you to get a new car insurance plan at a discounted rate, even when you buy a new vehicle. So when you sell your car and get a new vehicle, ensure your car insurance policy, along with the accumulated NCB, is transferred to your name.

3. Leads to Savings

Since you get the vehicle insurance coverage at a lower rate, you get to save money. Savings are always handy and no matter what form they come in, they are always welcome! This is a major advantage of the no-claim bonus component in car insurance and a big reason why you must pursue and collect it.

Keeping the above-mentioned benefits in mind, it can safely be said that the no-claim bonus is one of the most beneficial components of motor insurance.

Points to note:

When you look to get a no-claim bonus on your motor plan, keep the following points in mind:

1. Not valid on third-party car insurance plans

A very important point to note here is that the no-claim bonus is not valid on the third-party car insurance plans. You can only avail of the NCB benefit in comprehensive car insurance. So, if you want to get a basic third party car insurance cover for your vehicle, you will have to do without the NCB advantage.

2. Can be protected with a rider

You can protect your accumulated NCB with the help of a rider. Riders are add-on covers that are available at an added cost. You can get the NCB protection rider. Then, even after making a claim, your NCB will remain intact. The different insurance providers have different clauses associated with the NCB protection rider, so read the terms and conditions carefully to understand the exact scope of the coverage.

3. Lapses if the policy is not renewed

Another crucial thing to note here is that the no-claim bonus lapses and becomes zero if you do not renew your car insurance plan on time. It is very important to get the renewal done before the policy tenure comes to an end. Not only will you lose your motor insurance coverage if you allow your policy to lapse, but you will also lose the accumulated NCB. Hence, renew the plan on time and enjoy all the benefits available to you.

Keep these very important factors in mind when you look to utilise the NCB in motor insurance.

The bottom line

As you can see, the no-claim bonus can impact the premium of your car insurance policy. The bonus can reduce the premium amount significantly and help make your motor insurance plan more affordable. The NCB also allows you to get higher coverage at a lower cost. You can add more riders and customise your plan as per your needs since your basic premium amount comes down. This is highly advantageous and one of the best uses of the no-claim bonus.

Disclaimer: Above mentioned article is a consumer connect initiative. This article is a paid publication and does not have journalistic/editorial involvement of IDPL, and IDPL claims no responsibility whatsoever.