Insurance
•03 min read
Welcome to our brand-new series, A-Zs of Insurance. In this series, we will venture into the world of insurance to breakdown insurance jargon for you, so you’re empowered to make informed decisions about your financial security.
BOGO offers at your favourite clothing shop, discounts on food delivery apps, festive sales on your favourite e-commerce site – who doesn’t love getting a little extra when it comes to rewards?
On this note, did you know your insurance plan can give a little something extra, in the form of a discounted premium or amped up cover amount?
Yes, with something known as a no claim bonus, your insurance policy can reward you for practicing safe habits---whether it’s your driving skills, health choices, or lifestyle habits.
Let’s have a look at what a no claim bonus means and how it works.
A no claim bonus, in the simplest sense, is a benefit that you can get for not making any claims under your insurance plan during the policy term.
The no claim bonus can be given to you in two forms, depending on the type of insurance and the specific product you own:
1. Increase in cover amount
Here, if you don’t make a claim during the policy term, your cover amount is boosted by a predetermined percentage. For example, Jiya owns a health insurance plan with a cover amount of Rs 10 lakhs for a term of 1 year and the policy comes with a no claim bonus of 10%. She doesn’t make any claims during the policy year. So -
Cover amount = Rs 10 lakhs
No claim bonus = 10%
Increase in cover amount during next renewal = 10 lakhs + 10% of 10 lakhs
= 10,00,000 + 1,00,000
For example, Ananya owns a health insurance plan with a cover amount of Rs 5 lakhs for a policy term of 1 year. It comes with a no claim bonus of 10%.
Let’s say Ananya doesn’t make any claims in the first year. So -
Cover amount = 5 lakhs
No claim bonus = 10%
Increase in cover amount during next renewal = 5 lakhs + 10% of 5 lakhs
= 5,00,000 + 50,000
= 5,50,000
So, her increased cover amount at the time of policy renewal will be Rs 5.5 lakhs.
Now, let’s say she makes a claim in the second year. Her cover amount will decrease at the same rate (i.e. 10%), coming down to Rs 5 lakhs during the next renewal.
2. The no claim bonus typically does not affect the core features
A boost in your cover amount typically will not lead to a boost in specific plan features. For instance, if your health insurance plan comes with room rent limit or imposes certain caps on treatments, the no claim bonus typically will not remove such limitations.
Remember to check your insurance policy documents carefully to understand how this applies to you.
General insurance plans like health insurance, bike insurance, car insurance, etc., typically offer no claim bonuses. The exact applicability of the bonus depends on the insurer and the product you choose.
Please go through your plan’s documents carefully to understand if and how the no claim bonus applies to it.
= 11,00,000
So, when she renews her policy the next year, her cover amount will be Rs 11 lakhs, which will go on increasing by 10% for each claim-free year upon yearly renewal.
Note: Some plans come with a maximum limit for no claim bonus accumulation.
2. Decrease in premium
Here, for every claim-free policy term, you get a discount on your renewal premium as the no claim bonus. For example, Aniket owns a bike insurance plan for which he pays a yearly premium of Rs 3500. It comes with a no claim bonus of 20% for the first year. Let’s say he doesn’t make any claims during the year. So -
Premium = Rs 3500
No claim bonus = 20%
Revised renewal premium = 3500 – 20% of 3500
= 3500 – 700
= 2800
So, Aniket will need to pay a discounted premium of Rs 2800 whilst renewing his bike insurance plan.
Here are a few things to be aware of:
1. Your no claim bonus may reset if you make a claim
Imagine your plan’s no claim bonus increases your cover amount for every claim-free policy term. If you make a claim in the subsequent year, the increased cover may be reduced at the same rate. Or if your plan offers you a premium discount as the no claim bonus, it may reset to zero once you make a claim.
