No-claims discount explained

Chances are, you’ve heard the term ‘no-claims discount’ before when people talk about car insurance. This guide explains exactly what it is, and how it can lead to cheaper cover the longer you drive.

Published

28 Sep 2018

What is a no claims discount?

If you have car insurance, you can be eligible for a no-claims discount for every year you don’t make a claim on your policy, although certain types of claims may allow you to keep your discount. This depends on the insurer and the policy type you have.

A no-claims discount, explained in its simplest terms, is a discount which will drive down your premium further for each year you don’t claim, usually up to a maximum of 5 years.

Some insurers may also offer no-claims discounts for periods of less than a year – it will vary from policy to policy.

How does a no-claims discount work?

If you haven’t made an insurance claim within the no-claims discount period of your policy, you may be eligible to receive a discount on your insurance premium. When choosing your insurance, it’s worth remembering that discounts and the way they work can vary depending on your policy.

Usually insurance companies will only allow you to build up your no-claims discount for a fixed period – often up to a maximum of 5 years (resulting in savings of up to 60% on your insurance premium*). However, again, this can vary depending on your individual policy so it’s important to check with your insurer.

*source: Moneyfacts

How does a claim affect my no-claims discount?

If you have to make a claim following an accident you may lose some or all of your no-claims discount if your insurer has to pay out. This may apply whether the accident was your fault or not, or if it’s unclear whose fault it was. You can also lose your no-claims discount if your car is stolen.

However, you may be able to keep your no-claims discount if you can prove a collision isn’t your fault, and if your insurance provider can secure payment from the other driver’s insurer.

It’s also worth looking into the kind of claims that can affect the discount, as some policies will allow for windscreen damage, for instance, keeping the no-claims bonus intact. In the case of minor damage, where the cost of the repair is small, it can be an option to pay the amount yourself rather than going through the insurer, as making a claim could affect your discount.

What happens if I switch insurer?

If you have a no-claims discount built up but you want to switch to a new insurer, you will have to supply proof of no claims to the new insurance provider. Any document confirming your no-claims discount should do.

The amount may also appear on your cancellation letter when you switch, but if you don’t have any written proof, you should be able to request this from your insurer.

Keep in mind when you switch, it’s not possible to transfer your single discount and apply it to more than one car.

What is a protected no-claims bonus?

By paying a small fee to your insurance provider, you may be able to keep and protect your full no-claims discount, even if a claim has been made. This is what’s known as a protected no-claims bonus. It’s worth checking with your insurer if your discount is protected against all types of claims, or only specific claims.

It's likely that the fee will be less than the discount you’ve accrued over time, although this may vary depending on your policy. There may also be limits on how often the protection can be used, and you may still lose your no-claims discount if you claim two or more times in a year.

Paying for no-claims protection does not prevent the price of the policy from increasing later on.

What about named drivers and no-claims discount?

When no-claims discount is calculated, insurers will typically only look at the policyholder’s driving history and how long they’ve gone without making an insurance claim.

In the case of multi-car insurance, a no-claims discount can be useful if a named driver on your cover eventually wants to buy their own car, as they can use their no claims status for their own insurance. Although, this usually only applies if they use the same insurance company.

Be aware however, that if a policy lists any named drivers and they have an accident, this can still affect the no-claims discount of the policyholder.

What if I cancel my car insurance policy

If you choose to cancel your policy, you will usually be given two years to apply your no-claims discount to another policy. After this time, it will expire and you will need to build up your discount again from scratch. Contact your insurer to find out more.

Remember…

No-claims discount terms and conditions may vary from insurer to insurer, so if you’re in any doubt, they should be able to clarify any discount rules on your specific policy.

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Important information

The content on this page aims to offer an informative introduction to the subject matter but does not constitute expert financial advice specific to your own situation. All facts and figures were correct at time of publication and were compiled using a range of sources.