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, weâ€™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 youâ€™ve driven without making a claim. For example, if you havenâ€™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 youâ€™re the main driver on a fully comprehensive policy and you donâ€™t need to make a claim, youâ€™ll be awarded one yearâ€™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 youâ€™ll have to start building it up again.
If youâ€™re hit by another driver and itâ€™s later agreed that you werenâ€™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 canâ€™t be established, then usually both insurance companies will split the cost of the claim and both driverâ€™s NCB will be affected. However, if your NCB is reduced and youâ€™re later found not to be at fault but have used the reduce NCB on a new insurance policy, itâ€™s likely that your NCB will be reinstated and youâ€™ll be awarded a refund of the unnecessary excess you paid on your premium.
Protecting your NCB
Once youâ€™ve built up your NCB to a certain level (this varies between insurers) youâ€™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 â€œat faultâ€ claims without affecting the bonus at all.
If you choose to protect your NCB, you should be aware that this wonâ€™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 youâ€™re simply guaranteeing an equivalent discount will be added to your premium following the claim, there is no guarantee that your premium wonâ€™t rise which means there is also no guarantee that the cost of your insurance will reduce year on year.
Thereâ€™s a lot to go at here so weâ€™ve split this one into a two-parter. Tomorrow weâ€™ll take a look at changing vehicles, company vehicles and overseas NCB.
We hope you've gained a deeper understanding of how car insurance no claims bonus works, while you're here - why not check out some of our latest deals to see how much you could save on your next lease car?