No claim bonus in Motor Insurance Policies – An explanation

Insurance

oi-Sneha

By Deepak Yohannan

Published: Saturday, October 6, 2012, 11:41 [IST]

A no claim bonus, also known as a no claim discount, is paid to policyholders as a token to appreciation for not making any claims in specified amounts of time.

In other words, if the policyholder who is also the car owner doesn't make an insurance claim for damages caused to the vehicle, he or she will get a discount on the premium of the following insurance term.

Thus, the No-Claim Bonus is a feature incorporated by the insurance companies in Motor Insurance Policies to encourage policyholders to not make small claims at regular intervals.

How it works

Let's take an example. Mr. Sharma, after buying a new car, opted for a motor insurance policy from Bajaj Allianz General Insurance. In the first year, he had to pay a premium of Rs. 11,257 on the face value of Rs. 3,60,000. In the second years, he was eligible for a no claim bonus (for not having made any claims the in the 1st year), of 20%. With depreciation, the face value now stood at Rs. 3,00,000 and the premium was reduced to 9,006.

Similarly, with no claims being made, the bonus accumulated and increased by 5% every year. So at the end of the sixth year, he got a discount of 50% and had to pay a premium of only Rs. 2,814. On the hand, his brother unfortunately had to make many claims and even with depreciation lowering the premium rates, at the end of the sixth year, he had to pay a premium of Rs. 8,443 as compared to his brother's Rs. 2,814.

Eligibility criteria

You will be eligible to make a claim if:
1. You haven't made any claim in the preceding policy period
2. If you renew your policy in time, i.e. if you do not take a break of more than 90 days between expiration of the old policy and the issue of the new one

When to opt for a no claims bonus

Often policyholders find it confusing whether to opt for a claim or the no claims bonus. It isn't very confusing actually. All you need to do is get an estimate from your mechanic about the cost of repairs after the accident. If the cost comes to an amount greater than the bonus amount available in the following term, opt for the claim.

However if the claim amount is lesser than the bonus amount, do not opt for the bonus. For instance you have a dent at the back of the car and need to shell out Rs.1,500. You calculate the bonus amount for the following year and see it will amount to Rs. 2,200. In such a situation, it's wise to get the car repaired on your own and save Rs 7,000 (Rs.2,200-1,500) in the process.

The no claims bonus is an attractive feature and you must avail it. Not only does it encourage you to only make larger claims, it also encourages you to be more careful with your vehicle. Most insurance companies also provide you with the option of transferring the bonus on to a new vehicle. So read the offer documents carefully so that you know exactly how and when you will be eligible for a no claims bonus.

For more articles by Deepak Yohannan, please visit MyInsuranceClub.com