Forbes India 15th Anniversary Special

Nuances of No-Claim Bonus in general insurance

Published: May 17, 2018 06:40:48 PM IST
Updated: May 17, 2018 06:43:16 PM IST

Nuances of No-Claim Bonus in general insurance
It is a given that the price of general insurance increases every year. Fortunately, the insurance premium of a general insurance plan (like a health insurance policy or a motor insurance policy) can be reduced with a No-Claim Bonus.

What is a No-Claim Bonus (NCB)?
In the case of a motor insurance plan, general insurance companies reward the policyholders for every claim-free year with a No-Claim Bonus that can be used to get a discount on the insurance premium at the time of policy renewal for the subsequent year. The accumulated NCB is usually used to get a discount of 20-50% on the insurance premium provided the policyholder maintains a claim-free record. There are certain nuances about No-Claim Bonus in general insurance that a policyholder must know in order to reap its benefits. More information about Insurance can be found in

● The first time you purchase a comprehensive car insurance policy, you are not eligible for a No-Claim Bonus discount on the premium paid as you don't have a claim-free record yet.
● The first time you renew your motor insurance policy, you can claim an NCB discount of up to 20% on the renewal premium provided no claim has been made the previous year. Avoid making claims for minor repairs as your NCB will go back to zero with a single claim. Evaluate the cost of minor repairs and the NCB discount on premium, compare the two, and make a smart decision regarding small claims that can affect your claim-free record.
● With every claim-free year, NCB increases steadily up to a maximum of 50% over a period of 5 claim-free years.
● No-Claim Bonus belongs to the policyholder and not the vehicle that has been insured under the policy. Therefore, the accumulated NCB can be transferred to a new motor insurance policy of a new vehicle. The NCB credits can also be transferred to a new insurer from the existing insurer.
● No-Claim Bonus transfer is not allowed from person to person unless the policy has been transferred to a legal heir who stands to inherit the vehicle and its insurance policy upon the demise of the policyholder. NCB transfer is possible only at the time of policy renewal.
● You can purchase an NCB protect add-on cover that can be attached to your base motor insurance policy for an additional premium. So, even if you do make a claim, your NCB will be protected.

As per the Motor Vehicles Act, 1988, all vehicles in public spaces in India must have a third-party motor insurance policy. As third-party liability covers are cheaper and mandatory, most car and bike owners opt for third-party four-wheeler and two-wheeler insurance policies, respectively. However, NCB is not available for third-party motor insurance plans.

No-Claim Bonus Transfer
Are you planning to replace your old car with a new car? When transferring your NCB credits from the old policy to a new policy, you must submit a letter requesting for NCB transfer along with Forms 29 and 30 (which is a buy-seller agreement form) to your current insurer. The insurance company will issue an NCB certificate with 3 years validity which has to be submitted to the new insurer for NCB transfer.

When switching insurers at the time of policy renewal, all you need to do is submit the previous year's policy document or renewal notice with the NCB details to the new insurance company. Keep in mind, the new insurer will cross-check to ensure you haven't made any claim in the past years.

Cumulative Bonus in Health Insurance

In the case of health insurance, policyholders are rewarded with a Cumulative Bonus for every claim-free year. A cumulative bonus is an increase in the sum insured by 5-100% (depending on the insurance provider) at the time of policy renewal for making no claims in the previous years. If you don't make a health insurance claim for one year, the insurance company will reward you with an option of either a cumulative bonus or an NCB which can be used to get a discount of 5-20% on your yearly insurance premium. If you make a claim, then the NCB on your sum insured will go down proportionately by 5%. However, the sum insured of a health insurance policy will not go down below its original value despite multiple claims.

Although there is no NCB discount in life insurance, there are ways by which a policyholder can enjoy a low life insurance premium. By leading a healthy lifestyle without smoking or drinking, one can get a low-premium life insurance policy. Furthermore, purchasing a life insurance policy at a young age can also ensure a low premium as life insurance premium rates are determined based on the entry age of the insured member. A life insured in his/her 20s will pay a lower premium compared to a life insured in the 30s for the same term insurance plan.

Before investing in a life or non-life insurance policy, read the policy document carefully, especially the inclusions, exclusions, waiting period, No-Claim Bonus, renewal clauses, and claim process so as to avoid any hassle when making a claim in the future.