Motor insurance is the bestseller category of product among all lines of businesses followed by health insurance in India. This is primarily due to the punitive nature of not having the mandatory third party liability insurance for any motor vehicle plying in the roads of the country.
In the current pandemic times health insurance has also emerged as a must have for all individuals and families but there is no fine applicable for not having a health insurance policy which is the case with motor insurance in India.
Being a bestseller product which is purchased by any person having any sort of vehicle whether a two wheeler or four wheeler, private or commercial vehicle, there are many questions in the mind of majority of people about the various technicalities of a motor vehicle insurance product.
With the number of vehicles increasing by leaps and bounds on the roads of even tier 2 cities of our country, we can expect a large number of people having one or another kind of doubt regarding the product and the claim process.
In this article we will discuss in detail about one exciting and rewarding feature of motor insurance which is No claim bonus shortly and popularly termed as NCB.
Motor vehicle insurance of any common form consists basically of two sections named as own damage and the third party liability section. Own damage section covers any external accidental damage to the vehicle out of the perils named in the policy, the perils generally covered are fire or self-ignition, act of god perils like flood, cyclone, earthquake, Riot, strike, Malicious damage etc.
Third party liability is the mandatory no fault liability section where your insurer pays compensation to the victim of the accident by your vehicle as granted by motor accident claims tribunal. You can buy only a third party liability policy and thus comply with the law of the land but it is always advisable to buy a comprehensive motor insurance policy with both the sections as a major accident of the vehicle can have an impact on your pocket which can be well avoided.
There are many technical features of a motor insurance policy, for instance, depreciation, insured declared value (IDV) which the customer must have at least a basic understanding of as a buyer. Having understood the basic structure of the policy and a few technical terms here let us understand No claim bonus feature of the policy in details and how this is calculated.
Insurance is a pooling mechanism where the loss of a few is shared among many, for the premium we pay under any insurance policy if we do not make a claim the premium is forfeited by the insurance company or in other words its used to pay larger losses of other unlucky insureds and as the underwriting profit of the insurer.
No claim bonus is such a feature in a motor insurance policy which rewards the insured for not making a claim under the policy in previous years by giving a discount in the subsequent year premium on the own damage part. Point here to be noted is that there is no discount in any case on the third party liability part of the premium under the policy.
The NCB calculation is fairly simple and process by which it is calculated forms the part of the policy wording as well. If there is no claim made during the preceding year a discount of 20% is provided by the insurer on Own damage section premium. Similarly a discount of 25%, 35%, 45% and 50% is applicable if there are nil claims under the policy in the preceding two, three, four and five consecutive years.
The above discount structure is same for a two wheeler or a four wheeler motor vehicle, so there should not be any confusion about the same.
Let say for an example Mr. Ravi purchased a brand new motorbike for an amount of 1 Lakh and takes a comprehensive insurance policy for a premium of 5000/- out of which the own damage section premium is 3500/-.
Now if he doesn’t make any claim in the policy year and his renewal own damage premium comes out to be 3000/- he will be entitled to a discount of 600/- which is 20% of 3000/-. Thus this year he will pay an own damage premium of 2600/- only.
In the similar fashion he will be getting the NCB for every claim free year as per the percentage slabs mentioned above up to a maximum of 50% of the own damage premium. Due to this very rewarding NCB feature of a motor insurance policy many people tend to go for self-repair in case of an accidental damage if the cost of repair is not that much what he will be saving as a no claim bonus in the coming renewal.
This is a win-win situation for both the insurer and the customer as there is a lesser follow of very small claims to the insurer which saves it administrative and other costs.
For the information of our readers we would like to highlight that there is an add on cover available in the market named as NCB protector where by payment of additional premium one can protect the no claim bonus rewards even if he makes one or two claim under the policy as per policy terms and conditions.