Millions of motorists pay a higher car insurance premium to protect their no-claims bonus.
When you take out car insurance, amongst other things, you are asked about your claims history in the last five years and how many years no claims bonus you have. These two factors have an impact on the premium you will pay along with the other information you have provided.
Some car insurance companies say that premiums will be reduced by as much as 90% if you have not made a claim in the last five years. They then give you the opportunity to protect that no-claims bonus should you unfortunately have an accident and charge you an additional amount for including this option.
So, is it worth protecting your no-claims bonus?
Unfortunately there is no definitive no or yes answer. This is due to the fact that insurance companies provide different levels of discount for those who protect their no-claims bonus or have not claimed in the last five years.
The majority of car insurance companies use a sliding scale for no-claims bonuses. Graeme Trudgill from the British Insurance Brokers Association made reference to the fact that, generally speaking, if you have not claimed in your first year of driving you could get a discount of about 30%, in the region of 40% in year two rising to about 60% after the 5th year.
However a number of insurance companies go further. For example, Sheilas’ Wheels and Esure will provide a discount of up to 75% if you have not claimed in ten years and Axa 90%. As a guide, a motorist with only two years no-claims bonus may pay about 33% more per annum than another driver with five years discount. Therefore, it is not surprising that drivers are tempted to protect such discounts.
Direct Line allow you to commence protecting your no-claims bonus after you have made no claims for four years but at Aviva it is only three years.
According to Graeme Trudgill, by protecting your no-claims bonus, will add around 5%-10% to your premium. Some insurance companies charge a higher percentage with Esure charging 12.5% but there are some that will charge a lower percentage such as More Than at around 3%.
Some insurers restrict the number of times you can protect your no- claims discount. For example, Aviva will allow a driver who has built up four years no claims discount to make two “at-fault” claims in a three year period without any adverse impact on your protected no claims discount. If you do exceed the number of claims in a given period then generally speaking the number of years no-claims discount is reduced by two years for every subsequent claim. Some insurers protect your no-claims discount no matter how many claims you make over any period.
Of course, to compound matters, if you do make a claim it is quite possible that when your insurance comes up for renewal that your premium may increase as you will be perceived to be a greater risk.
So, as you can see, it is just about impossible to work out if protecting your no-claims bonus is financially viable. You could obtain car insurance quotes both with and without the option, then take into account your current no-claims history, and then deduct two years from it. By doing so you will have an indication just how much the reduction/loss of your present discount could have.