After years spent building up a No Claims Discount (NCD) – also called a no claims bonus – many motorists worry about losing it by making a claim. After all, an NCD can save you hundreds of pounds a year on your car insurance premium.
To address this worry, insurance companies offer protection on your NCD – basically, insurance on the discount on your car insurance. With NCD protection, you can keep some or all of your NCD even if you make a claim. The level of protection varies by insurance provider (e.g., allowance of two claims in a three-year period before NCD goes to zero). Like all insurance, NCD protection costs money. Is it worth it?
What is a No Claims Discount?
Insurance companies reward safe drivers – those who haven’t made a claim in a certain period of time – with a percentage reduction in their premium. This reward is called a no claims discount (NCD).
Each year in which you are claim free, your NCD can increase. After the first year a 30% NCD is quite common, often increasing to 50% - 60% by the fifth claim-free year. NCD rates will vary by provider, and some cap the discount after 5 years or so.
The NCD percentage represents the level of discount you receive on your premium. For example, say the premium for a certain level of coverage for your make and model of car and your driver profile (but no NCD) is £1,000. If you have a 60% NCD, you only pay £400 for the annual coverage. A significant savings. As long as you don't make claims your NCD rolls over year after year, possibly even growing.
Making a claim will reduce or eliminate your NCD. The more claims you make, the more the NCD is reduced until is it totally lost. In general, the first accident will result in your NCD being knocked back by two years – but insurers may only look at your last five years which means a motorist with 9 no-claim years could be left with only a 3-year NCD (5 years – 2 years). Keep in mind that every insurer operates a different set of NCD rules, both in terms of earning and losing your NCD.
Example of How Much NCD may be Lost per Claim
|Insurer||After 1st Claim||After 2nd Claim||After 3rd Claim|
|Admiral||2 years of NCD lost||4 years of NCD lost||Full NCD lost|
Why Should You Buy NCD Protection
NCD protection is essentially another form of insurance which protects your NCD in case there's a claim on your insurance—either you make a claim on your policy or someone else makes a claim against you, or even in some cases if an uninsured driver hits you.
If making one claim can reduce your NCD from, say, 5 years to 3 years, this could result in your insurance bill going up by nearly 50%. For example, see the following calculations for a starting £1,000 policy:
|NCD||Starting Premium (£)||Discount (£)||Your Insurance Cost(£)|
|5 Years NCD of 60%||£1,000||£600||£400|
|3 Years NCD of 45%||£1,000||£450||£550|
With NCD protection, your NCD would remain at 60% even after the claim, saving you £150 a year in this example. So to decide if NCD protection is worth it, do some rough calculations based on your individual premium and the particular terms of your NCD to see how much you risk losing in savings if you make a claim.
Why You May Pay More After a Claim, Even with NCD Protection
NCD protection guards your NCD from dropping in the event of a claim – but making a claim may still cause your premium to increase. As a result you may pay more when you renew, even with NCD protection.
For example, let’s say your base premium is £700 per year, but your 40% NCD means you only pay £420 for your policy. If you make a claim (and have NCD protection) your 40% NCD holds steady, but your base premium may increase the following year, say to £800. Now you pay £480 for the same policy - £60 more per year. So your rate rose, even though you had NCD protection.
Insurance Cost may Rise with NCD Protection—Example
|Starting Premium (£)||NCD||Your Insurance Cost(£)|
When deciding if NCD protection is worth the cost, keep in mind that it may not fully protect you from a rise in cost in the event of a claim. NCD protection only protects your NCD—not your premium.