Car insurance can be described as an agreement between a policyholder and an insurer, where a policyholder pays a certain amount of premium to cover the damages incurred to the car. Under the Motor Vehicles Act of India, car insurance is mandatory for every car owner to be able to legally drive on roads. Car insurance can provide financial protection and make you legally compliant. Another important aspect of it is that it also rewards policyholders for responsible driving.
The reward offered is called a No Claim Bonus, which acts as a discount to policyholders when they have a claim-free year. It helps reduce the premium when the policyholder renews their policy, helping them save.
What is NCB in car insurance? How does it act as a reward for policyholders? This article explores the answers and explains how NCB reduces premiums and the NCB transfer rules that can help you comprehend the premium calculation process with NCB.
Table of Contents
- What is NCB in Car Insurance?
- How does No Claim Bonus Work?
- How NCB Reduces Your Premium
- Breakdown of Car Insurance Premium
- Add-Ons and GST
- Example Calculation
- When is NCB Lost or Reduced?
- Making a Claim
- Lapsed Policy
- NCB Transfer Rules
- Transferring When Changing an Insurer
- Transferring When Selling a Car
- NCB Protection Add-On
- A Quick Comparison of NCB in Different Scenarios
- Should You Claim Insurance or Preserve NCB?
- Conclusion
- FAQS
What is NCB in Car Insurance?
The full form of NCB is No Claim Bonus, which can be called a reward that is offered to a policyholder when they don’t make a claim for a year. NCB accumulates with every claim-free year, effectively reducing the premium for policyholders. NCB reduces the premium by acting as a discount, which could be between 20%to 50% based on the number of claim-free years. It usually applies to own damage and comprehensive car insurance policies, and is not offered to a third-party insurance policy. It is also essential to understand that NCB is not a cashback that policyholders receive but a discount that applies to their renewable premium.
How does No Claim Bonus Work?
No claim bonus works as a discount to the policyholder’s renewable premium, and the discount percentage increases with every passing claim-free year. Below is a table that demonstrates how the NCB percentage increases.
| Claim-free years | NCB Discount |
| 1 year | 20% |
| 2 years | 25% |
| 3 years | 35% |
| 4 years | 45% |
| 5+ years | 50% |
You can see that the maximum discount stands at 50%. It consistently stays at 50% after 5 years of no claims from the policyholder. The discount percentage increases only when policyholders maintain consecutive claim-free years. Even a small claim resets the No Claim Bonus to zero.
How NCB Reduces Your Premium
Below is a brief explanation of how insurers calculate premiums for each type of car insurance policy. It also shows how NCB reduces your premium with an example.
Breakdown of Car Insurance Premium
Insurers offer three types of car insurance policies. The Motor Vehicles Act of India mandates the third-party policy. The explanation below answers these questions: How is the premium calculated for each type of policy? What is NCB in car insurance? How is it calculated?
- Third-Party Only: Since this insurance is mandatory, the Insurance Regulatory and Development Authority of India fixes the premium based on the vehicle’s engine or battery capacity.
- Own-damage Car Insurance: Policyholders with an own-damage policy pay a premium that is based on their car’s Insured Declared Value(IDV), model, and age of the car. The location of residence also influences the premium. Metropolitan cities increase accident risk due to heavy traffic.
- Comprehensive Car Insurance: Under a comprehensive car insurance policy, a policyholder pays a premium that is the sum of the own-damage premium and the third-party premium. The insurer fixes the third-party premium based on the car’s engine capacity. The own-damage premium depends on the car’s IDV, age, and model.
Add-Ons and GST
The base premium is then increased with the addition of GST, which is 18% for all types of car insurance plans. If a policyholder purchases add-ons like return to invoice or zero depreciation, the insurer adds their cost to the base premium. A separate 18% GST applies to the add-ons.
Example Calculation
No Claim Bonus acts as a discount and reduces a policyholder’s renewable premium. Below is an example of how NCB works.
For Example, if a policyholder has purchased an own-damage policy and has not made a claim for 3 consecutive years, then the
- Base Premium = ₹10,000 (based on their car’s IDV)
- NCB = 35% ( for 3 claim-free years)
- The calculation would be = 10,000 ×35% = 3500
- The renewable premium payable = ₹10,000 – 3500 =₹6500
When is NCB Lost or Reduced?
Below is a brief explanation of when an NCB gets reduced or lost.
Making a Claim
No Claim Bonus accumulates when a policyholder makes no claim for consecutive years. But the NCB drops to zero as soon as the policyholder makes a claim, regardless of the claim amount. Even in the case of partial claims where a policyholder pays half the amount of the claim, the NCB still resets to 0%. Any claims made by the policyholder will result in them losing their No Claim Bonus discount percentage on their renewable premium.
Lapsed Policy
Every policy has a validity period, and the policy should be renewed by the policyholder within the expiry date. If the policy is not renewed within the grace period, the insurer offers a grace period to renew the policy. If a policyholder fails to renew the policy within the 90-day grace period, they lose the No Claim Bonus. This applies regardless of how much NCB they have accumulated.
NCB Transfer Rules
Below are the rules for transferring a No Claim Bonus
Transferring When Changing an Insurer
When a policyholder decides to change the insurer, the NCB can be transferred to another insurance company. The transfer takes place when the new insurer analyses the policyholder’s claim history and confirms with the previous insurer.
Transferring When Selling a Car
The NCB is usually not transferable when the owner of the car changes, as the No Claim Bonus stays with the owner, not the vehicle. That said, the NCB can be transferred to the policyholder’s new car, as long as the owner of the policy is the same.
NCB Protection Add-On
No Claim Bonus Protection is an add-on offered to policyholders to protect and accumulate their NCB. When a policyholder purchases an NCB protection add-on, the NCB remains the same even if a claim is made. If a rider raises a claim for an accident, theft, or a stolen car, the NCB stays unchanged with the add-on. This might be a beneficial option for policyholders looking to protect their No Claim Bonus.
A Quick Comparison of NCB in Different Scenarios
| Scenario | Impact on NCB |
| No claim | NCB increases |
| Small claim | NCB resets to 0% |
| Policy lapse (90+ days) | NCB lost |
| Car sold | NCB retained by the owner |
| Insurer changed | NCB transferable |
Should You Claim Insurance or Preserve NCB?
Since making a claim resets your NCB to zero, the decision should be based on the cost of repair versus the value of the discount you may lose.
When you may consider preserving NCB:
- If repair costs are relatively low, it may be better to pay out of pocket instead of losing your accumulated NCB.
- If repair costs are relatively low, it may be better to pay out of pocket instead of losing your accumulated NCB.
- Avoiding small claims helps maintain a clean record and keeps premiums lower over time.
When it may be better to make a claim:
- If the repair cost is high, claiming insurance is financially sensible despite losing NCB.
- If the repair cost is high, claiming insurance is financially sensible despite losing NCB.
- In case of injury or damage to another person or property, filing a claim is necessary.
Conclusion
NCB is a key factor that can significantly reduce your car insurance costs over time. By maintaining a claim-free record, policyholders can benefit from lower renewal premiums while also building a financial cushion for future policies. However, it is equally important to understand when to use your insurance and when to preserve your NCB. Making informed decisions, along with careful policy selection and timely renewals, ensures you maximise both savings and coverage in the long run.
FAQS
1. What is NCB in Car Insurance?
The full form of NCB is No Claim Bonus, which can be called a reward that is offered to a policyholder when they don’t make a claim for a year. NCB accumulates with every claim-free year, effectively reducing the premium for policyholders.
2. Is NCB applicable in a third-party only policy?
A third-party policy is mandatory by law, and the premium paid is fixed by the IRDAI based on the policyholder’s car engine capacity. NCB or No Claim Bonus is not applicable to a third-party only policy, and it only applies to an own-damage or a comprehensive policy.
3. Will my NCB drop even if I make a small claim?
Yes, the NCB will drop to 0% even if the policyholder makes a small claim, but it will stay unchanged if the NCB protection add-on is purchased by the policyholder on renewal.
4. What is the maximum No Claim Bonus applicable on car insurance?
When a policyholder has made no claim for one year, the NCB percentage applicable on the renewable premium will be 20%, and for the consecutive claim-free years, the percentage reaches up to a 50% of NCB.
5. How long is NCB valid?
A No Claim Bonus is valid until the policyholder has a claim-free year or years, but when a claim is made, the NCB resets to 0% regardless of the claim amount.