Should you protect your no claims discount?

We all want to pay less for our car insurance, and one of the best ways to chop down the premium is to amass as much no claims discount (NCD) as possible.

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Insurers reward drivers who do not claim on their policy by giving them a percentage discount off their premium for each year of claim-free driving.

So, for example, after one year without a claim you might get a 20% or 30% discount. After five years – usually the maximum number of years permitted – the discount might be worth 75%.

As a further incentive insurers offer to add ‘no claims discount protection’ to your policy, which means your NCD will not be affected, even if you make a claim.

However, this protection comes at an additional cost and, although it can save you money if you have to make a claim, research by MoneySupermarket has shown that there is a tipping point when it ceases to be cost-effective.

So is it really worth protecting your NCD? Let’s take a look…

How do NCDs work?

Insurance companies give drivers an NCD for each year that they do not claim on their policy. These can be accumulated each year, usually up to a maximum of five years, which can result in a saving of 75% on the cost of cover.

Peter Harrison, car insurance expert at MoneySupermarket, says: “Building up your no claims discount over a number of years can be a valuable commodity and can significantly reduce the cost of your premiums.”

This is because one of the criteria that insurers use when calculating the cost of car insurance is the level of risk associated with each driver.

Drivers with several years of claim-free motoring are seen as less of an insurance risk and so receive a discount on their premium.

With premiums at record high levels, it is easy to see why an NCD is so precious. And, understandably, once you have accumulated five years’ NCD you may want to protect it so that those years of claim-free driving are not lost if you have an accident.

The cost of protecting your NCD

MoneySupermarket’s research found that motorists adding NCD protection to their policy would pay, on average, an extra £33 per year on top of the cost of their cover.

This seems a worthwhile outlay when you consider that a policyholder with five years’ unprotected NCD would see their premium rise by £130 if they made a claim, while the same motorist would see their policy rise by just £10 if they had a protected NCD.

However, the research also found that the longer a motorist with NCD protection goes without making a claim, the less cost-effective it becomes.

For example, if a driver with five years’ protected NCD then made a claim within a year, they would, on average, be £54 better off. If they made a claim in the second year, this would drop to £21.

If the same driver did not make a claim until the third year after they protected their NCD, they would have paid £12 more than someone without protection. If they made a claim in the fourth year, they would be £45 out of pocket.

The importance of shopping around

Car insurance premiums vary from company to company and from driver to driver so it is vital that you shop around to find the cover that is right for you.

Peter Harrison said: “If you are looking to protect your no claims discount, shop around for the best deal available for your circumstances and, if you do find a better deal with another provider, you can take your no claims bonus with you.”

It is also worth noting that some insurers will allow you to make multiple claims on a protected policy without incurring a penalty, so you should always check the terms and conditions.

What’s more, in most cases, motorists with five years’ NCD will not lose their entire NCD if it is unprotected and they make a claim. In these situations it is more common to lose just two years’ NCD.

When deciding whether to protect your NCD remember that it is the discount that you are paying to protect, not the price of your premium. And as insurers take claims into account when setting premiums, you may find that the cost of your cover increases anyway in the event of a claim.

When looking for car insurance it makes sense to search using MoneySupermarket. We offer one of the simplest ways of comparing car insurance, giving you quotes from more than a hundred providers in just a few clicks.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct

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