How does the no claims bonus system work?

We're asked a lot of questions about the no claims bonus system; we agree that the topic can seem pretty complicated, whether you’re new to insurance or you've been driving for years. We’ll try to answer your questions here, but please get in touch if you would like more information.

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What is a No Claims Bonus?

A no claims bonus (sometimes called a no claims discount), is a percentage discount applied to your premium in recognition of a period of claim-free insurance. It’s usually calculated and applied each year at the renewal of a policy, or whenever you apply for a new policy. So, if you’re a careful driver you present a lower risk to your insurance company and you’ll make some great savings on your annual premium.

How much discount will I get?

Insurance companies each have their own scale of no claims bonus, but a typical example might be:

30% discount after 1 year’s claim-free insurance

40% discount after 2 years

50% discount after 3 years

60% discount after 4 years

65% discount for 5 years or more claim-free insurance.

I’ve been a named driver on my parents’ policy until now. Can I get a no claims bonus?

A number of insurers do now offer an introductory no claims bonus for named drivers, but the discount they offer you may be different to the discount they offer drivers who’ve had an insurance policy in their own name. They may also have restrictions on the minimum age they’ll offer a named driver discount to.

To be sure of reaping the maximum benefit from your good driving, you’re probably better off getting insurance in your own name as soon as you possibly can. After a year, if you’ve had no claims, the savings can be significant.

No claims bonus for second drivers

Second drivers, also called "named drivers", usually don't earn their own bonus whilst on someone else's insurance. However some insurers will permit named drivers to earn their own NCD which can be used to get lower car insurance premiums further down the line, but this is usually only the case if you stay with the same insurer.

I’ve just changed my car – will I have to start earning a no claims bonus from scratch again?

No. Your no claims bonus is earned by you, the policyholder. It doesn’t affect your NCB if you change the car that’s insured on your policy.

I’ve bought a second car – can I apply my no claims bonus to both cars?

Unfortunately not. Even though a no claim bonus is earned by the policyholder, you can only apply it to one car at a time. Most times, you’ll have to start earning a new NCB on each additional vehicle you insure, but some insurers may allow you an “introductory” or “second car” discount if you mention it to them.

What happens to my no claim bonus when I change my insurance company?

This isn’t usually a problem. You simply need to ask your old insurance company to supply you (or your new insurer) with proof of your no claims discount (e.g. 3 years, or 4 years). The annual renewal letter from your old insurer may serve as proof of your no claim discount, or you may have to ask them to send specific proof in a separate letter.

There is usually a time limit for you to provide your new insurance company with proof of your no claim bonus (for example 7, 14 or 21 days). If you fail to do so within the time limit, your new policy could be cancelled, leaving you uninsured, or they could increase your premium to reflect the lack of any no claim discount.

The process is usually quite smooth, however, and once proof is received, your insurance company will continue to apply the correct discount to your premium.

Will I lose my no claim bonus if I make a claim?

It depends if your insurance company can recoup the expenses of your claim. For example, if another driver crashes into you and it’s undeniably their fault, your insurance company may be able to recover the cost of repairing your car from the other driver’s insurance company.

If that happens, you won’t lose any of your no claim bonus.

But if you make a claim where you are at fault, or your insurance company can’t recover their losses, your no claim bonus will be affected.

Your discount usually “steps back” by two years for each claim. So, for example, a three year bonus would reduce to one at your next renewal. If you made another “at-fault” claim, the resulting step-back would result in you losing your no claim bonus altogether.

Protecting your no claim bonus

Once you’ve built up more than three years no claim bonus, you can “protect” it. This means you pay an extra fee to the insurance company and in return, your no claim bonus will be safe-guarded, even if you make an at-fault claim.

Insurers vary in their rules for protected no claims bonuses. Some will allow you, for example, two claims in five years, but it could be a little as two claims in three years. Check the rules with your own insurer.

Remember that a protected no claims discount won't guarantee that your annual premium won't increase, only that the discount on your annual premium is protected.

For example, your insurance costs £1,000 in the first year but is reduced to £400 after applying a 60% protected no claims discount. You make an at fault claim that year. The following year, your annual premium may rise to £1,100 owing to normal cost rises, but your 60% discount is protected following your claim, and so your premium for that year is £440.

Normally, the NCB would drop back two steps (e.g. to 40%) after a claim, which means that your premium in the second year would have been £660 without the protected NCB.

Is it worth paying to protect your no claims bonus?

The payment for protecting your no claim bonus is usually less than the discount you’d lose if your NCB stepped-back by two years, which makes it worth having, but do your own calculations to be sure. If you have a run of several years without making a claim, but pay for protected no claims bonus, the saving diminishes a little, but the sums are still likely to add up in favour of having it.

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