A no claims bonus is almost certainly the biggest and best discount you can get on your insurance premium and can save you up to a whopping 75%. Here, we’re going to look at exactly how they work and how you can build yours.
What is a no claims bonus?
A no claims bonus (NCB) is a discount awarded to you by your insurance company based on the number of years you’ve driven without making a claim. For example, if you haven’t made a claim for five years then your NCB will be five years.
The value of your no claims bonus varies between insurers but an NCB of five years could give you a huge discount on your premium of between 60 and 75%.
Building a no claims bonus
Building your no claims discount is really easy, in theory, for every year you’re the main driver on a fully comprehensive policy and you don’t need to make a claim, you’ll be awarded one year’s NCB. Some companies even offer 10-month policies, after which a full year NCB will be awarded. However, sometimes this can work out more expensive.
The size of a no claims bonus is unlimited, but insurance generally consider five years to be the maximum when working out discounts.
How is the bonus affected by a claim?
The way a claim affects your no claims bonus will depend entirely on the type of claim but if your insurer has to pay out you could lose some or even all of your bonus, in which case you’ll have to start building it up again.
If you’re hit by another driver and it’s later agreed that you weren’t at fault then your insurance company may be able to reclaim the costs from the other party. In this case, your no claims bonus may not be affected, although this is not guaranteed.
If fault can’t be established, then usually both insurance companies will split the cost of the claim and both driver’s NCB will be affected. However, if your NCB is reduced and you’re later found not to be at fault but have used the reduce NCB on a new insurance policy, it’s likely that your NCB will be reinstated and you’ll be awarded a refund of the unnecessary excess you paid on your premium.
Protecting your NCB
Once you’ve built up your NCB to a certain level (this varies between insurers) you’ll be given the option to protect it. Protecting your NCB will add a small fee to your premium, but it will allow you to make a certain number of “at fault” claims without affecting the bonus at all.
If you choose to protect your NCB, you should be aware that this won’t necessarily prevent your premiums from rising after a claim because insurers will calculate your premium based on your claim history and then add your no claims bonus at the end.
By protecting your NCB you’re simply guaranteeing an equivalent discount will be added to your premium following the claim, there is no guarantee that your premium won’t rise which means there is also no guarantee that the cost of your insurance will reduce year on year.
There’s a lot to go at here so we’ve split this one into a two-parter. Tomorrow we’ll take a look at changing vehicles, company vehicles and overseas NCB.