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How To Make The Most Of Your No-claims Bonus

Mar 15, 2008
Motor insurance premiums can take a pretty big bite out of your pocket when you first start driving. A new, inexperienced driver will pay top price for car insurance - but there are ways to steadily reduce the amount that you pay out in premiums over time.

One of the most important is building up a no claims bonus through your insurer. The longer you can go without making a claim against your policy, the less you'll pay for your insurance premiums over time.

The reason for that is quite simple, really. As a good driver, you're not costing the insurance company money. Going even your first year without an accident or a claim against your insurance can reduce your premiums by 30% in your second year. While there's no standard no-claims bonus, most insurers follow something similar to this:

One year: 30% discount
Two consecutive years: 40% discount
Three consecutive years: 50% discount
Four plus consecutive years: 60% discount

Each consecutive year that you get through without making a claim will reduce your insurance premium further. Typically, you'll reach maximum discount level after five consecutive years of no claims. A discount of 60% is typical, but some insurers may discount it even further.

Holding on to your No Claims Discount

Holding on to your no claims bonus isn't always easy, but there are some ways to preserve the discount to which you're entitled. You may even be able to keep your no claims discount when you move your policy from one insurer to another, as long as you can prove that you're entitled to it.

Bear in mind that third party accidents which are not your fault will usually not affect your discount, as long as their insurance company picks up the costs. Other things that aren't your fault can cause you to lose some or all of your discount, though. If your car is stolen or damaged by events beyond your control and your insurance company picks up the tab, you could lose your discounts.

What's a Step-Back?

Most insurers won't wipe out your no claim discount for a single claim. Typically, they'll step-back your discount, usually by two years. If you have four year bonus, entitling you to a 60% discount, and have an accident for which you make a claim, your discount will probably be cut to the 40% discount you'd receive after two consecutive years without a claim.

Protecting Your Discount

It could be worth avoiding a claim if the costs for repairs aren't much higher than the excess on your insurance policy. If the costs for repairing your vehicle are not much more than what you'd pay when making a claim anyway, it could be more beneficial to just pay and make no claim.

Many insurers will also allow you to pay a little extra to protect your discount, though usually you can only protect your no claims bonus if you've already built up to a full entitlement. Once you've gone six years claim-free, though, you may be able to pay a slightly higher premium to keep your no claims bonus even if there are future claims.

Protected Bonus Cautions

Of course, your discount is applied to your new premium so your no claims bonus only helps a bit. If you've had other claims against the policy, your insurer will probably take that into account when setting your new premium for the year. Your discount will remain intact, but the cost of your insurance could still go up because your premium is higher.
About the Author
For more tips to save you money on motor insurance such as budget policies like Norwich Union Simple Insurance and comparing as much of the market as possible with comparison sites like Moneysupermarket, visit the UK car insurance companies index.
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