Car insurance policies run for 12 months. If you don’t make a claim during that time, you’ll qualify for a discounted premium the following year and, once you’ve been claim free for five years, insurers give the option of protecting the no claims discount (NCD) you’ve accrued. This will mean a higher premium beca use of the extra cover but the risk of not protecting it is that if you have to make a claim you will lose some of the discount.
Research carried out by moneysupermarket.com has shown that drivers making a claim will see their premium rise by a massive 73% if their no claims discount has been left unprotected.
However, a driver who has protected their NCD would only see their premium rise by 18% however the question is, is it really worth the extra premium protecting your no claims discount?
Time makes a difference
The more claim-free years you build up, the more attractive the option of protecting the discount you’ve accrued becomes. However, in actual fact, it is the first five years (so years six to 10 because you can’t protect your NCD until year five) when paying for that extra protection is most valuable.
Steve Sweeney, head of motor insurance at moneysupermarket.com said: “Having reached the five year no claims discount level, many motorists will be reluctant to take the risk of losing it and may consider paying extra to protect it. With premiums on average rising by 73% if you make a claim, paying extra to protect your policy against this sharp hike might be worthwhile. But be warned, if you protect your policy but don’t make a claim for a number of years, you could find that you are eroding any potential savings.”
Protecting your NCD adds an average of £62 to the cost of your annual car insurance premium (although do note, that this is an average figure so will vary depending on your circumstances and the insurer).
However, as Steve pointed out, the longer you protect your NCD for, the less cost effective it becomes, so in the first year a driver that protects their five years no claims discount and makes a claim will on average be £155 better off compared to a driver who makes a claim on an unprotected policy.
With the annual cost of protecting your NCD lying at an average of £62, if you don’t claim until your third year you will be £31 better off.
The point where your protected policy works against you would be in the fourth year if you then had to make a claim. Again due to the average annual cost of protecting your no claims discount, you would actually be £31 worse off compared to someone who didn’t protect their NCD.
What else needs to be considered?
Shopping around for the best deal for your circumstances is imperative and remember – if you do find a better deal elsewhere then you will be able to take your no claims bonus with you. You can check out the best deals and compare policies by using our car insurance comparison tool.
It’s also worth taking time out to read through your insurer’s small print as some providers view protecting a no claims discount in a different light to others. For example, some insurers may let you make multiple claims on a protected policy but some may limit the amount of claims you can make.
If you chose not to protect your NCD you won’t lose the entire discount in the event of a claim. On average you will lose two years’ for one claim.