What is No Claims Discount (NCD) Protection - And Should I Buy it?

After years spent building up a No Claims Discount (NCD)—also called a No Claims Bonus (NCB)—many motorists worry about losing their NCD if they claim. After all, an NCD can save you hundreds of pounds a year on your car insurance premium.

There's one way to keep from losing your NCD if you claim, and that's by paying an extra premium to "protect" your NCD. 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. Is NCD protection worth the cost?

What is a No Claims Discount?

A no claims discount (NCD) is a percentage reduction to your insurance premium; the percentage is determined by the number of years you haven't made a claim. 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.

For example, if you have a 60% NCD and your premium without any NCD would be £1,000, then you only pay a £400 premium (£1,000 less 60% or £600). The NCD can represent a significant savings.

As long as you don't make claims, your NCD rolls over year after year, possibly even growing. However, 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.

And remember, protecting your NCD doesn't mean your premiums won't rise.

Is NCD Protection Worth it?

NCD protection is essentially another form of insurance which protects your NCD in case there's a claim on your insurance—this can include incidents where you make a claim on your policy, someone else makes a claim against you, or even cases of an uninsured driver hitting you.

Example: Let's say your starting premium is £1,000, you have 5 years of unprotected NCD that gives you a 60% discount, you need to claim and the terms of your policy state that one claim reduces your unprotected NCD from 5 years to 3 years. By claiming you then lose two years of NCD, costing you £150:

However if you had NCD protection, your NCD would have remained at 5 years/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 NCD—and then consider how much you're being quoted to protect your NCD because the cost to protect a NCD can range from £2 to nearly £100.

You May Pay More After a Claim, Even with NCD Protection

NCD protection guards your NCD only from dropping in the event of a claim—but your premium may still rise. In fact your premium is likely to increase after making a claim. 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 (£800 less 40%). So your premium rose by £60 a year, even though you had NCD protection.

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.

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