No Claims Discount

No Claims Discount

Car insurance can take a big chunk out of a motorist's budget. Young drivers, particularly men, are traditionally particularly badly affected by car insurance with insurers charging them higher premiums on account of them being statistically more likely to be involved in an accident and make a claim.

There are a number of ways to cut the cost of car insurance, but one of the most effective is to build up a no claims discount (NCD), sometimes called a no claims bonus.

If you don't make any claims on your policy for a year, you could earn a discount of 20% to 30%. Motorists who stay claim-free for five consecutive years could knock up to 75% off their premium.

Insurers offer such generous rewards to drivers who don't make claims because they are basically cheaper to insure. If you pay for any damage to your vehicle out of your own pocket, you save the insurer money.

Bear in mind that your premium can still go up at renewal, even if you don't lodge any claims on the policy. Insurers consider a range of factors when they set premiums, not just your claims history, so you should not be surprised if the price of cover rises.

How is the car insurance no claims bonus calculated?

Insurers calculate the no claims discount in different ways, but it usually builds up each year to a maximum of five years. You can typically expect to earn a 10% discount after one year of claim free driving; a 20% discount after two years; 30% after three years; 50% after four years and up to 75% after five years.

Some insurers run accelerated bonus schemes, which allow you to accumulate a discount more quickly. For example, you might be able to earn a full year's no claims bonus in just 10 months. The schemes are often offered to young drivers to promote safer driving and lower premiums.

Will I lose my no claims discount if I make a claim?

If you claim on your policy after an accident that was not your fault and your insurer can recover all their costs from a third party; your no claims discount will not normally be affected. Some insurers also disregard claims for a broken window or windscreen.

Can I take my no claims discount with me to another insurer?

Drivers should not automatically renew their car insurance with their existing insurer because they might be able to find a cheaper deal elsewhere.

You can normally carry your no claims bonus over to the new firm, though you might have to give written proof of your clean driving record - and you might not always be entitled to the same level of discount.

Can I transfer my NCD to another person or another car?

The no claims discount usually applies to the main policyholder and for one car. So, you cannot normally share the NCD between two cars or transfer it to another driver.

A small number of companies will, however, recognise the claims-free history of a named driver on a policy. Let's say a father adds his son as a named driver to his insurance. After two claim-free years, the son wants to take out his own policy for his own car. Some insurers might agree to honour his clean driving record and offer a discount on his insurance. He might, however, have to stick with his father's insurer - and the discount might not be as generous as for the main driver.

No claims discount protection?

The best way to safeguard your no claims bonus is not to make any claims. But sometimes a claim is unavoidable - and you could forfeit your NCD through no fault of your own. If, for example, an uninsured driver causes an accident, your insurer might not be able to recoup all of its costs, so you could lose your valuable discount.

Uninsured drivers are increasingly common. In a recent MoneySupermarket survey, one in six motorists admitted to having driven without insurance at some point in their lives.

Many people therefore choose to pay an extra premium to protect their bonus. No claims discount protection usually means they can make one or two claims within a given period and still keep their discount.

The price of protection is often worth paying, particularly when you bear in mind that some insurers knock two years off your discount if you make a claim in any one year.