A multi-year car insurance policy is a type of policy in which the premiums for several years are paid at once, in a lump sum amountA multi-year policy has many benefits for the policyholders, the primary one being that it eliminates the yearly renewal processSimply pay once and you are covered for the next few yearsDue to the unique nature of the multi-year car insurance policy, certain features that is generally present in car insurance work differently in this form of coverageOne such important feature is the No Claim Bonus or the NCB.
In this article, we look at how the No Claim Bonus functions within a multi-year car insurance policy.
The Benefit of the No Claim Bonus
For the uninitiated, the NCB is a feature offered to policyholders for their diligence in drivingIt refers to a discount/bonus given to the policyholder when they do not raise any claims during the policy termIn a regular car insurance policy where the policy is active for a year only, the NCB can be availed on the premiums of the following yearThe NCB is cumulative in nature – the longer you do no raise a claim, the higher is the discount you are eligible for.
The discount you can get for the first claim-free year could go up to 20% and then keep on increasing until it reaches the maximum discount limit setthe insurerMost insurers have a limit of 50% beyond which the discount percentage does not increase.
However, in a multi-year policy, the premiums are paid for several years, so the process of getting a discount on your premium is different. The NCB in a multi-year car insurance policy is decidedthe number of claims made during the policy termSo, the lower the number of claims, the higher will be the NCBSome insurers have a very specific structuring of the NCB for multi-year car insuranceHere, it is not just the number of claims made but also when they were made during the policy term that makes a difference on the NCBSo, if you had a multi-year policy of 3 years, and you made a claim in the first year, but made no claims for the rest of the policy term, then the discount you may be eligible for would be more than if you had made the claim in the second year.
In a single-year car insurance policy, the policyholder could lose their entire accumulated NCB of the previous years if even a single claim is madeSo, in many ways, the multi-year car insurance is beneficial when it comes to NCB as one retains their NCB even after having made a claim.
Do bear in mind that this structuring may differ between insurers.
Risk Losing NCB if Policy is Not Renewed on Time
It is to be noted that the NCB gets transferred from one policy term to another policy term only if the car insurance renewal is done on timeIf the policy is not renewed even within the grace period from the expiry date of the previous policy term, the NCB is lost.
Since there is no yearly renewal process within a multi-year car insurance policy, the risk of losing the NCB in this manner goes away.
We hope this article has helped improve your understanding of how NCB works in multi-year car insurance.