Jane Baker explains how to get 60% off your car insurance with a no claims discount.
When you first hit the roads as a new, inexperienced driver, the cost of your car insurance can be pretty steep. That's why building up a no claims bonus over the next few years is crucial in reducing your premiums.
Insurers will lower the cost of your insurance policy if you manage to keep a claim-free record. This gives you a no claims bonus which entitles you to a premium discount at renewal. Surprisingly there's no standard scale of bonuses but the table below shows how they generally accumulate:
Period of Insurance | Typical No Claims Bonus/Discount |
|---|---|
One year (i.e. the preceding year) | 30% |
Two consecutive years | 40% |
Three consecutive years | 50% |
Four or more consecutive years | 60% |
You'll enjoy a larger discount for each year that passes claim-free and it usually takes five years to reach the maximum. A full no claims bonus is typically rewarded by reducing your premiums by a whopping 60%, although some insurers may offer even greater discounts.
Nowadays if you're moving your policy it is standard practice for the new insurer to take the no claims bonus you have built up with other insurers into account when setting your premiums as long as you can prove your entitlement.
But preserving your no claims bonus isn't always that easy. Accidents caused by third parties will normally have no impact as long as their insurer picks up the bill. But if your car is stolen or damaged by something beyond your control, in adverse weather conditions for example, you could still lose some - or all - of your discount. Even if an accident wasn't your fault, it could go down as a black mark on your claim-free record if your insurer can't claim the money back from someone else.
Step-Back
If you have to make a claim, most insurers will 'step-back' your discount, typically by two years. So let's say you have a four year no claims bonus which entitles you to a discount of 60%. After a claim your discount would be cut to 40%, which is the typical discount you would receive after two consecutive claim-free years.
For this reason it's worth avoiding a claim if the costs involved aren't much greater than the excess payable under your policy. It could be more beneficial in the long run to pay the costs yourself to preserve your bonus.
You can pay extra to protect your discount, although this is usually only possible once you have already built up a full no claims bonus. By paying a higher premium for your insurance, your discount will be unaffected by future claims. Recent analysis has found that, on average, a protected no claims bonus adds around £31 to your annual premium.
How Protected Are You?
Don't think just because you have a protected no claims bonus you can be any less careful than before. Crucially insurers will still take your claims history into account when setting your premiums for the following year even if your discount is protected.
Your new premium at renewal could still rise if you have made a claim. While you'll continue to qualify for the same discount as before, this discount will now reduce the cost of a higher premium which has been loaded following your claim. In other words, your percentage discount will remain intact but the actual cost of your insurance could be higher than before.
Remember the best route to cheaper car insurance is to avoid making a claim! That said, I think protecting your no claims bonus is still worth the extra cost. You should still be able to get a less expensive policy than you would with no bonus at all.
If You're A Young Driver
If it's your first time behind the wheel, or you have only been named on a parent's policy and you now need insurance in your own right, your premiums can be costly. You haven't yet had the opportunity to build up a no claims bonus, which means you won't qualify for a discount.
But don't despair. Some insurers will provide a special introductory discount for new drivers or accelerated policies where a no claims bonus can be earned over a shorter period. This type of policy might allow you to build up the first year's bonus in say, ten months rather than twelve.
Finally, make sure you shop around before choosing a policy. Every insurer prices its policies differently, so visit the Motley Fool's Insurance Centre to help you find a competitive quote.