What is No Claim Bonus in Car Insurance?

No Claim Bonus:

Are you a safe driver? What if you are told that you will be rewarded for having a safe pair of hands? A No Claim Bonus does just that! You can benefit from being a safe driver and not making a claim when you renew your insurance policy by taking advantage of a clause known as the No Claim Bonus. The clause has been designed to reward and encourage drivers to be safe on roads. If you have not claimed insurance for damages to your vehicle or to self in the preceding year, you are eligible for a No Claim Bonus the subsequent year. The greater the number of years where one hasn’t claimed insurance, the higher the discount offered. Will explain about this in further detail in the following paragraphs. A higher discount on account of “No Claims” makes your Car Insurance Policy more affordable.

The No Claim Bonus is a win-win mechanism for both the insurer and the insured. The insurer benefits from not having to pay during the period insured for. Some of that benefit gets passed on to the insured by way of a No Claim Bonus. With a No Claim Bonus, the insured has an indicative reference around what will be his/her premium amount the following year. For example, you own a hatchback car which is five years old. You haven’t claimed insurance in the preceding five years. In this case, you are eligible for a discount of 45% on the premium. While the discount available is fairly standardized across insurers, it is subject to review and change. Therefore, it is important to understand this aspect before finalizing on your policy purchase and the insurer from whom you purchase the policy. Generally, the discount slabs are as follows: 20% for the second year, 25% for the third year, 35% for the fourth year, 45% for the fifth year and 50% for the sixth year. The saving potential stands at a minimum of Rs.2,400 (at 20%) to a maximum of Rs.6,000 (at 50%) on a premium of Rs.12,000 for a car insurance plan. The No Claim Bonus can be carried forward provided the policy is renewed within 90 days of the expiry date. A No Claim Bonus is applicable only to the “own damage” part of the premium. This translates to 80% of the policy premium. The premium for third-party damage constitutes the remaining 20%.

Termination of No Claim Bonus:

Your No Claim Bonus stands invalid under the following primary conditions (besides others as specified by your insurer):

i. If you have made a claim during the preceding year, you cannot claim a No Claim Bonus in the current year. Similarly, you cannot claim a No Claim Bonus the subsequent year, if you have already claimed insurance in the current year.

ii. You cannot avail a No Claim Bonus for a lapsed policy. So it is important to ensure you renew your auto insurance plan within the stipulated time frame. In most instances, companies provide a 90 day window for auto insurance renewal of existing policy.

Tips for No Claim Bonus:

Here are a few suggestions you might want to consider while utilizing your No Claim Bonus:

  1. No Claim Bonus Transfer: A No Claim Bonus can be transferred from one vehicle to another provided the policyholder is the same. This is because the No Claims feature is linked to the insured and not the vehicle. However, please note that the vehicle type has to be the same. If you currently have two-wheeler insurance and you have purchased a new hatchback car, the No Claim Bonus you have earned for your two-wheeler cannot be availed for your new car.
  2. You can not only transfer your No Claim Bonus from vehicle to vehicle but from insurer to insurer. In order to transfer your No Claim Bonus discount from your old insurer to your new insurer, you will have to follow the procedures as listed by your current insurer.
  3. In some cases, it may be prudent not to claim insurance if the cost of repair is estimated to be lower than the No Claim Bonus discount you will be eligible for in the following year.
  4. Many insurers offer a No Claim Bonus exclusively for customers that purchase auto insurance online. Do background research if this is the case with the insurer you intend to purchase your auto policy from and also evaluate the discount slabs and premium outgo before you decide on your Car Insurance Policy. Compare wisely!

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