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How does your no claims discount work?

December 23, 2015 | By | In Buying Guides
How does your no claims discount work?

The term ‘no claims discount’ is often bandied around, on TV adverts for car insurance and on comparison websites, but is everyone clear on what it actually means and how it works? Just in case, Motors.co.uk explains more here…

What is a no claims discount?

Simply put, a no claims discount is the number of years a driver has gone without a claim on their car insurance policy.

Often, car insurance companies will offer discounts on your policy for any years accrued without a claim, but how much depends on who your policy is with and how many years your no claims has lasted. On average, according to Confused.com, a no claims period of five years or more can shave up to 75% off your annual premium, so it’s well worth investigating further if you haven’t made a claim.

It’s also worth noting that if you take your Pass Plus this could automatically add another year to your accrued no claims, and some insurers run a 10 month rather than a 12 month year which is again worth investigating when you come to purchasing your policy.

You can accumulate an unlimited number of years no claims but most insurance companies will only use a maximum of five years to count towards your no claims discount.

What happens if you make a claim?

If you make a claim on your policy that results in a pay-out from your insurer, the likelihood is that you’ll lose all or at least part of your no claims discount. Again, how much you lose depends on who your policy is with and the severity of the claim.

However, if you’re hit by someone else and it is confirmed that the accident wasn’t your fault, your insurer may be able to recoup the money from the other party and therefore your no claims discount won’t be affected.

If the person that is at fault can’t be determined, the insurance companies may split the costs and both parties’ no claims discounts are likely to be affected.

Can a no claims discount be carried across to a new car or new insurer?

Yes, you can usually transfer your no claims discount to a new car as it is you who is building up the record as a good driver. It’s worth checking with your insurance company before you purchase your new car though, just in case there is any small print that may affect your policy.

In regards to carrying a no claims discount to a new insurance policy, this can only be done if you transfer the policy once your previous one has run out and not if you cancel your existing policy for any reason. When transferring a policy to a new insurance company the old insurer should provide proof of your no claims history, which can be passed on to your new insurer so your discount can be carried over.

What if the no claims discount is protected?

Lots of insurance companies now offer you the option to protect your no claims discount, but what does this actually mean? In reality, it allows you to have two accidents during your policy that are deemed to be your fault without affecting your no claims discount. However, this doesn’t necessarily mean that your premium won’t go up after a claim, as your claims history is used to calculate premiums with discount accrued added at the end. Therefore, although it may be cheaper than if you hadn’t protected your no claims, it won’t necessarily mean your policy is cheaper than the previous year.

Overall though, if you do have an accident that is your fault, it does work out cheaper to pay to protect your no claims discount than to pay the additional fee on a policy bought as a driver who doesn’t have a no claims discount.

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