Safe drivers, who don’t make insurance claims often stand to enjoy savings through lower premiums. Insurers reward safe drivers with a benefit called no-claim bonus (NCB). This entitles an auto insurance policy holder to discounts on the premium for every claim-free year.
For instance, for one year of no claim on the cover, you get 20 per cent discount on the premium for the following year. For every claim-free year, NCB keeps accumulating. Five consecutive claim-free years can notch up the discounts on premium to as much as 50 per cent.
To illustrate, you buy a new Honda City, costing Rs 7.7 lakh. In normal circumstances, the Own Damage Premium payable towards its insurance for the first year would be Rs 25, 279.
However, if you were to transfer the 50 per cent no claim bonus (the best case scenario) on your old car to the Honda City, you would pay Rs 12,639 as Own Damage Premium in the first year which results in 50 per cent savings.
The no-claim bonus applies to any comprehensive motor insurance policy which includes mandatory third party cover as well as own damage premium. The bonus is valid only on the own damage part of the policy which constitutes the bulk of the premium.
The third party damage component, which accounts for about 20 per cent of the premium, is not included under NCB benefits. When a claim is filed the NCB is wiped out. Subsequently, the renewal premium becomes higher as the benefit on account of NCB is no longer available to the policyholder.
Forego minor claims
This means that it may be a good idea to forego minor claims where the cost of repair to one’s vehicle is lower than the benefit forfeited by filing a claim. It is best to avoid running to the insurer for every little dent. Before filing a claim, weigh the cost of a minor paint job for a scratch on the surface or for repairing a broken side rear-view mirror with the no-claim benefit you will lose out on in the future.
Also, this bonus is an incentive which insurers give you for safe driving habits.
It is linked to the driver rather than the vehicle. This means no-claim bonus is transferrable to a new vehicle of the same class, should you sell your old vehicle and opt for a new one. This holds true provided certain conditions are met. For instance, this bonus of a two-wheeler cannot be transferred to a four-wheeler.
Transfer
How do you claim NCB? When you sell your car, the insurance also gets transferred in the buyer’s name.
Once the sale is completed, contact your insurer for the NCB certificate along with the delivery note for the old car. You can then forward the NCB certificate to the new insurer or to the same one if your new car policy is from the same insurer, to avail of the benefits. NCB can be utilised within 3 years of the transfer, where the old car is sold and replaced with a new one.
Since NCB is transferable from one insurer to another you are not bound should you wish to change your insurer.
Essentially, no claim bonus is a great way to progressively reduce your insurance premium. So drive safe and save a bundle.
(The author is CEO, BerkshireInsurance.com)