Car insurance is an essential but often costly expense for the tens of millions of car owners in the UK, particularly for young or inexperienced drivers. Fortunately though, with a few years of driving experience under your belt you can receive a significant discount, simply by not making any claims on your insurance policy.
What is a ‘no claims bonus’?
Simply put, a no claims bonus is a discount car insurers give for each consecutive year you drive without making a claim on your insurance policy. This typically means avoiding making any claims for minor damage to your vehicle that you could pay for yourself, or replacing a battered old car whose only value is in scrap metal. However, for more serious and expensive accidents or incidents, or if your high-end car is stolen, you may have no choice, as the compensation may far outweigh the amount you could save from the bonus.
The actual discount your insurer offers will be a percentage of your insurance price and can range from 30% in your first year up to 65% after five years (and sometimes even higher!). Essentially, the longer you go without making a claim, the larger the discount you will receive, although many insurers cap the discount after five years.
Whilst car insurance companies offer no claims bonuses to reward drivers for driving safely, in reality it is because you are deemed to be a lower risk and cheaper to insure as you gain experience. When you avoid claiming, you’re not costing them any money in administration costs or compensation payouts and as such they can afford to offer you lower insurance prices.
How does it work?
To earn your bonus, all you have to do is not make a claim on your insurance for at least one year. The discount is then applied to your premiums for the following year and should increase annually as long as you don’t make any claims. The number of years of no claims you have accrued is typically shown on your policy documents. However, insurers tend to cap the bonus after years, so even if you went 10 years without claiming, you’d still only receive the same discount as you did after the fifth year.
It may sound simply like a waiting game to get some easy savings, but even the best driver can find themselves in a situation where they need to claim, so avoiding it is not always possible. Your car can get damaged or stolen which is completely out of your control, no matter how well you drive! So if the time comes and you do end up making a claim, you could lose the discount entirely, or have it reduced - depending on the amount paid out.
But with a bit of luck and patience, your no claims bonus should grow into a significant discount and save you some serious cash. It’s also worth knowing that in some cases you could end up in an accident caused by another driver, have their insurer pay you compensation, and still retain your bonus, so long as your insurer isn’t the one paying out. However, this is entirely dependent on the individual incident and how willing the third party’s insurer is to pay out for your damages.
Who is eligible for a no claims bonus?
All drivers listed as the main driver on a car insurance policy are eligible for a no claims bonus, after completing a minimum of one year of driving without making a claim. You must also have been registered and driving in the UK during that time.
This applies to drivers of all ages, including young drivers who have taken out their own insurance policy. It includes the three main types of car insurance policy, so whether you have a fully comprehensive, third party fire and theft, or basic third party insurance policy, you should be eligible for the bonus.
However it doesn’t apply to ‘named drivers’ who are listed on someone else’s insurance policy. Instead, only the main driver can build up the discount. In fact, if the named driver ends up in an accident that was their fault, the main driver’s bonus could actually be reduced.
Will I lose my no claims bonus if I’m in an accident?
The no claims bonus applies to claims you make yourself on your own policy. So if you were to have an accident that was your fault and you claimed on your insurance, you would likely lose some or all of your bonus. However, if you’re in an accident that is deemed the fault of another driver, you could receive a payout from the other driver’s insurance company, keeping your bonus intact. It all depends on the details of the incident.
Will I lose my no claims bonus if my car is damaged?
Owning and driving any car will inevitably result in some form of wear and tear or minor damage over time. For the smaller bumps and scrapes your car endures, it’s usually not worth claiming on your insurance and instead it’s better to pay for these expenses yourself. That’s because by making a claim, you’ll lose your bonus and in the long term this will bump up your insurance and cost you more overall. Financially, it makes more sense to just pay for the repairs at the time and keep your bonus going.
But if the damage is more extreme and costly to fix, you may have no choice but to make a claim and lose your bonus. So depending on the extent of the damage, it’s best to weigh up the costs to pay for repairs yourself and work out if claiming is worth losing your no claims bonus for. For small claims worth under a few hundred pounds, we’d suggest footing the bill yourself to keep your bonus rolling on.
How much could a no claims bonus save you on your insurance?
The amount of no claims discount you receive will depend on various factors and the car insurance company you choose. It also depends on the number of years of bonus you have built up. With the right insurer and at least five years of no claims, you could save up to a massive 65% on your car insurance. Some insurers have been known to offer a whopping 90% no claims bonus!
“At Esure and sister insurer Sheilas' Wheels, discounts of up to 75% are available to those with 10 years without claims, while at Axa, a 90% discount is advertised.”
With most suppliers though, the discounts are not quite as impressive. Below are some average discounts you could receive for various years of driving experience, according to Money Facts.
Average no claim discounts per year of experience
|Years of no claims||Typical discount on your car insurance|
Source: Money Facts
Most car insurers offer no claims discounts, but the actual discount each offers can vary wildly, so it’s worth double-checking the discount before you choose an insurer. For more information about the main car insurers in the UK, take a look at our car insurance suppliers pages.
Is it worth paying to protect your no claims bonus?
It is in fact possible to protect your no claims bonus by paying a little extra on your insurance premiums. The cost of no claims bonus protection is calculated as a small percentage of your insurance cost and so the more you pay for insurance, the more you’ll pay for the protection. On average you can expect it to add an extra 5% to 15% to your premiums, so if you pay £500 for your insurance, the added protection could cost you an extra £25 to £75 a year on top.
By paying to protect the bonus, you can make claims and still keep the discount intact. Whilst this could be worth it if you expect to make a claim or two, if you don’t actually end up claiming, the price of the extra protection will cost you more overall.
Whether it is actually worth it for you is difficult to say. Whilst it is usually a pretty small additional cost to pay and some drivers swear by it, others are skeptical. There have been numerous instances of customers that have still had their insurance premiums go up the following year after making a claim, despite paying for the no claims bonus protection. It would appear that many insurers are still likely to increase your premiums if you make any sort of claim. So whilst your discount will still apply, the actual base amount could still increase after claiming.
Therefore if you feel you are likely to need to make a claim or two and want the reassurance that you have this option, taking out the protection could be worth it. But if not, you’re better off building up the no claims bonus the traditional way and keeping the bonus protection money in your pocket.
Will my bonus remain valid if I stop driving?
If for any reason you decide to stop driving and let your policy expire, your insurance company should continue to honour your no claims discount for up to two years. If you buy a new policy within this time, you should still retain your previous no claims bonus. However, after two years of not being insured, you will lose the bonus and will have to build it up again from scratch.