No Claim Bonus & Car Insurance Renewals

Car insurance protects us from financial stress during an unfortunate event. You only have to set aside a specific sum every policy term, and the company will cover your repairs when you make an insurance claim. However, if you did not make any claim during a policy term, you get a no-claim bonus as a reward. Read on to understand what does no claim bonus means under car insurance. 

Points Regarding No Claim Bonus

1. A no-claim bonus is a specific reward that the insurance company provides the client during their car insurance renewal if they had no claims in the previous year. 
2. There are two types of no-claim bonuses. The insurance company can reduce your premiums or increase the sum insured. Reduced premiums will allow you to benefit from the no-claim bonus every year, but increased sum insurance is only beneficial during a claim. 
3. The increase in the sum insured and the decrease in the premiums depend on the NCB percentage. For example, if the NCB is 20%, you only need to pay 20% less insurance premium than the previous year or get 20% more sum insured.
4. The size of the claim does not matter regarding NCB. Every insurance claim, as small as repairing a scratch, reduces the NCB to zero per cent. Therefore, think hard before making a claim, and avoid small ones.
5. Disasters are beyond your control. However, driving carefully can reduce their probability and increase the chance of a no-claim bonus.
6. You can also ensure a no-claim bonus by purchasing an add-on that protects the NCB. You pay an extra premium, but the company will ignore a fixed number of claims and make you eligible for NCB.
7. One crucial factor regarding the NCB is the renewal time. You must renew the car insurance every year within 90 days after your policy term ends. Or you will lose all the NCB benefits accumulated during the previous year. 

Does the NCB continue to accumulate indefinitely?

NCB increases by a fixed per cent of the sum insured every year. But this does not mean that the sum insured increases or your premiums reduce indefinitely; the change depends on your chosen insurance plan. Suppose the NCB is 20%, and your insurance plan increases the sum insured as the bonus. Then the limit might be 100%. That means your keep getting the NCB until the sum insured becomes twice the initial amount; this will take 5 years. 

In case of premium reductions, the limit may be 60%; your premium will get reduced until it becomes 40% of the initial amount. Therefore, you only have to pay two-fifth of the initial insurance premium in three years. 

However, these cumulative benefits are only for continuous no-claim years. The NCB becomes zero after any claim; you must start over the following year. 

Conclusion

A no-claim bonus (NCB) increases the sum insured to premium ratio, giving a higher value to your insurance plan. For making no claims in the previous year, the insurance companies either increase the sum insured or decrease the premiums by a fixed percentage up to a specific amount. But renew on time. An insurance renewal after the period set by the insurer will result in laps of NCB benefits. Therefore, renewing insurance on time and making no claims saves you money on insurance. 

FAQs

• How much will be a no-claim bonus?

The actual no-claim bonus varies with the insurer. But all of them usually have a general pattern. An NCB percentage will determine how your benefits accumulate, and an upper limit will determine how long the NCB continues to grow. Moreover, the NCB percentage itself may vary; it may be initially 20%, then jump to 50% after five years. The percentage may also vary depending on whether the NCB is on the sum insured or premiums. 

• What happens when your car insurance expires?

When your car insurance expires:

1. You will no longer be able to make claims for repair and settle financial matters out of your pocket. 
2. Your no-claim bonus (NCB) will become ineligible for further growth. For example, the NCB will become zero per cent if your no-claim bonus is to increase to 40% next year and your insurance expires.

• What do you mean by the grace period?

Every car insurance has a policy term, and you must renew it after it ends. If you don’t, you will lose your cover and no-claim bonus, and you might have to get your car re-examined. But you don’t have to renew immediately after expiry; you get a certain amount of time to renew your policy. This time is the grace period of your car insurance. 

• What is a no-claim bonus add-on?

Insurance companies may offer you an add-on that helps you protect your no-claim bonus even if you have to make a claim. This feature requires you to pay an additional sum every year. The primary benefit of this feature is that your cumulative benefits won’t get lapsed; for example, this add-on allows you to get the 60% NCB after three years, even if you had to claim in the third year. 

• What are the requirements for the no-claim bonus (NCB) add-on?

The no-claim bonus add-on only applies to a fixed number of claims in a year. After that, any claim will reduce the NCB to zero. Renewing the car insurance within the stipulated time would be best, or the NCB add-on becomes ineligible. 

• Can you transfer the no-claim bonus (NCB)?

You can transfer the no-claim bonus as follows:

1. From one car to another: You can transfer your no-claim bonus when you buy a new car and sell the old one. The reason is that the insurer gives NCB to the owner and not the vehicle. 
2. From one insurer to another: If you change insurers, you can transfer your accumulated NCB. However, you need an NCB certificate from the previous insurance company.