Here’s a great new post from our resident expert:-
Understanding Car Insurance No Claims Discount and Bonus
By Dave Healey
Car Insurance No Claims Discount and Bonus Explained
If you are a young driver or an older new driver who has never purchased a car insurance policy before, you may well have heard of but not be aware of the meaning of the terms ‘No Claims Discount’ or ‘No Claims Bonus’. Most certainly when you first take out car insurance it is highly unlikely that the concept of these discounts was not explained to you, as they are not applicable in the first year of a car insurance policy. Essentially the two terms are the same and mean that for every year of claims free driving you will receive a discount on the following year’s car insurance premium. The discount is the amount as a percentage that will be allowed against the car insurance premium you pay, the Bonus concept of the number of years without claims expressed as an amount. The two terms are interchangeable as you may often see the expression NCD or NCB used throughout a car insurance policy key facts document.
Rewarding Good Driving with Cheap Car Insurance
The amount of the no claims discount will vary from company to company and is usually larger in the first few years, possibly even thirty percent in year two, and decreases over each subsequent year up to a fixed number of years, usually five or six. When you have achieved five or six years of driving without having made a claim you are said to have accrued ‘Maximum No claims Bonus’. Each and every Car Insurance Company will have a limit on the number of years it will allow you to build towards your maximum no claim period. The amount it will discount against the premium for someone who has maximum no claims is usually around sixty percent but with some specialised car insurers this can be higher, sometimes seventy percent or higher as these companies have a better ‘risk pool’ of similar drivers or vehicles covered, and though better knowledge of the market can adjust their rates accordingly.
Protecting Your Good Driving Record
If you have managed to get through five or six years without having to make a claim against your car insurance policy you will be offered the chance to protect your car insurance No Claims Bonus that you have built up with something called Maximum NCD protection. For a small additional premium you will be offered protection for your Bonus years which means that in the event of an accident where you are forced to claim, your subsequent year’s premiums will not be increased. When considering whether to purchase this additional cover it is well worth remembering that even if you have a no fault accident in year six of your driving, that forces you to make a claim due to the high cost of repairs to your car, your car insurance premiums the following year will rise by at least thirty percent and with some Car Insurance companies this can be much more. Maximum No Claims Bonus protection is a relatively new cover introduced within the last twenty years, no so much as a feature of choice from the Car Insurers, but moreover a necessity to tie existing customers into another year of policy contract, when the policy is due for renewal. This device worked well in early years however with the advent of claims databases and Car Insurance Companies exchanging data between themselves, it has become increasingly easier to transfer earned ‘No Claims’ years to another Car Insurer, who will in turn honor offer protection for this discount. You will usually be asked to provide ‘proof of no claims bonus’ in the form of a renewal offer letter if you renew your car insurance policy with a different insurer, or if you decide to cancel your current policy and change cover ‘mid-term’, you can ask the old company to provide a ‘standard letter’ of proof.
As with every insurance decision you need to weigh up the cost of purchasing this additional cover against the likelihood of a claim and the personal cost to yourself if you are forced to make a car insurance claim.