The safer a driver you are, the less likely you are to make claims on your car insurance policy – and so the cheaper that policy should be.
That’s the theory, in any case, behind the no-claims bonus: a discount on motor premiums for customers who have not made a claim on their policy for at least 12 months.
The value of a no-claims bonus is not to be sniffed at: while the level of discount for just a single year without claims can be relatively low, at around 10% or less, premiums can be cut by more than half for drivers who have gone five years or longer without making a claim.
How is your no-claims period worked out?
Essentially, the amount of no-claims discount you are entitled to will depend on how long you have had a car insurance policy in your name without making a claim.
The discount normally only builds up if you hold a policy for a continuous period of time – so if you do not own a car, and are not insured, for several years, for example, the clock will be re-set on your no-claims discount and any previous no-claims period is unlikely to be recognised.
However, if the gap is only one or two years, your insurer may permit you to carry over any previous no-claims bonus – although you will not be credited for the time when you were not insured.
Your no-claims period isn’t only affected by claims you yourself make: if another motorist claims against you for an accident where you were at fault – even if you don’t suffer any damage yourself – your no-claims bonus is likely to be affected.
At the same time, if you need to make a claim, but your insurer manages to recover the costs from another driver, your bonus should remain intact.
What level of discount can you expect?
As stated above, the discount you are eligible for will increase for each claim-free year you manage to accrue, up to a limit of typically between five and 10 years. Once you reach your insurer’s upper limit, you will get no further discounts for extra claim-free years.
Discounts vary from insurer to insurer, as well as from customer to customer. But as a very rough guide, a one-year discount could be around 10%, rising to perhaps 20% or 30% after three years and then to 50% or more after five years. Some insurers recognise no-claims period longer than five years and discounts can rise to 70% and beyond in certain cases.
Your no-claims bonus and changing insurer
If you move to a new insurer, you should be able to take your current no-claims bonus with you: you will just need to provide proof of your bonus to your new insurer in the form of a certificate or your most recent renewal letter (although sometimes your new insurer can contact your previous provider directly to get the confirmation it needs).
What happens to your bonus when you make a claim?
If you make a claim on your own insurance, or a claim is successfully made against you, you won’t necessarily lose all of your no-claims discount. Insurers will normally deduct a few years from your current discount rather than wiping it out entirely.
So if you have accrued five years’ no-claims discount when a claim is made, your insurer may reduce your bonus to two or three years. Again, the approach varies from provider to provider.
How you can protect your no-claims bonus
For those who have built up several years’ worth of no-claims discount, there is the option to protect their bonus by paying an extra annual fee. No-claims bonus protection means that, in the event of a claim, the customer’s discount will not be reduced as described in the previous section.
Your decision on whether it is worth taking out this extra cover will depend on your current level of discount, your insurer’s policy when it comes to reducing discounts in the event of a claim, and the cost of the no-claims bonus protection itself.