No-claim bonuses are usually paid when an insurance policy has been continually held over the specified period without a claim being made. Car insurance companies vary in how they treat no-claims bonuses, and their arrival can lead to reduced renewal premiums.
This class of bonuses can also be withdrawn if policyholders make claims during the bonus period. A no-claim bonus (NCB) is the money you save when you do not claim on your car insurance policy. It is also known as a 'no-loss bonus' or 'accident-free discount'. It works because if you have been driving for a long time without making any claims, your premium will be lower than someone who has made several claims in the past.
So, if you have been accident-free for five years, you will get a discount of 50% on your premium. No-claim bonus is a term used in the insurance industry. It is a reward given by an insurer to the policyholder for not making any claims in a specified period.
In simple words, it is a discount on your car insurance premium. The no-claim bonus is given to you when you don't claim any accident damages for some time. Depending on the company, this can be up to three years or more. If you have made claims in the past, you can still get a discount if you haven't made any claims for some time now.
Calculation of a No-claim Bonus
No claim bonus in car insurance is calculated every year. If you don't make any claims on your policy for 12 months consecutively, you will get 20% off your next year's premium if you continue to make no claims (i.e. 13 months). This continues until you reach a 50% discount, which means that if you continue making no claims for another four years, the premium for the 6th year will be half the amount payable at that time. You can refer to the following tabular representation of the No Claim bonus:
| No Claim Year | Discounts on Premium |
| 2nd year | 20% |
| 3rd year | 25% |
| 4th year | 35% |
| 5th year | 45% |
| 6th year | 50% |
This is a cashless benefit as it is not directly paid in cash. Instead, it will reduce your premium. The amount varies from one insurance company to another. Each has its way of calculating the no-claim bonus.
The discount amount varies from insurer to insurer and depends on factors like age, gender, and driving history. Some insurers also offer additional discounts if you purchase a vehicle under their group policies or renew your policy after an accident-free period.
Why Should You Renew on Time or within the Grace Period?
The no-claim bonus discount isn’t just an incentive for being a good driver. It’s also an incentive for renewing on time or within your grace period (a set amount of time after your policy expires when you can still renew without having to go through the entire application process again).
Renewing your policy on time is essential because if you renew it before its expiry date, you will be eligible for a new NCB and thus enjoy lower premiums for the next policy year. If you don't renew within the grace period (usually three months from the policy expiration date), your NCB will be forfeited, and you will have to start from scratch again.
When Does the No-claim Bonus Feature No Longer Work?
There are two common cases where this NCB feature doesn't work.
- One is when your car has been damaged, stolen, or not repaired. You can check with your insurance company about how long you need to wait before claiming NCB and getting that discount.
- The other case is if you have a new car and haven't transferred the car insurance policy to the new vehicle.
Suppose you make a claim within two years from buying a new car insurance policy. In that case, your bonus will be reduced by half for two years instead of three or five years, depending on how much bonus you were eligible for before making a claim. This is called 'early stage reduction, which aims to ensure people don't buy new cars to get cheaper premiums.
How Can You Transfer Your No-claim Bonus?
No claim bonus can be transferred to the new policyholder. The same will happen when you change your car insurance provider. To share your no-claim bonus, you must inform your insurer in advance. Suppose you have an existing policy with a no-claim bonus.
In that case, you must notify your insurer about any changes in address, vehicle registration and insurance cover before your car insurance policy renewal date. If you change your car insurance provider, you should do it at least three months before the expiry date of your current policy. This will give enough time for both insurers to verify details of the previous policy and your claim history.
Wrapping Up
Now that you know about the no-claim bonus, how does it help you? If you're coming up on your next renewal, we highly recommend checking to see how much it is worth to you and your insurer.
Then, take an honest look at your driving habits and record. You'll find a sweet spot where the reward is worth more than the risk.
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