Know Your Claims
No Claims Bonus Explained
One of the most common questions and items which people can often get confused with or causes misunderstanding, is the difference between a no claims bonus and driver experience.
We take a quick look at these two common terms and explain what they both mean and how they affect your car insurance policy.
No Claims Bonus
Your no claims bonus or 'discount' as its often called refers to the amount of years you have held an insurance policy and not claimed on it. This will give you a reduction in the cost of your premium based on the number of years you have been claim free. Being 'claim free' is defined as either you making a claim on your policy for something or someone making a claim against you and your policy. It is important to note that only the policy holder can build up a no claims bonus and named drivers on the policy cannot.
Most insurers have a limit on the maximum number of years you can avail of a no claims bonus, (usually 5 or 6) so even if you have 10 years claim free, and you will avail of the maximum discount offered.
If you make a claim, your no claims bonus will be affected either by it will be lost or reduced. In turn, this may affect your premium for the following year if you do not have your no claims bonus protected. Even if the claim was for something that was not directly your fault, such as your car was stolen, you will still have to make a claim against your car insurance, which will affect your no claim bonus. If you make a claim against your own insurance for an accident for example, and your insurer can resolve the issue with the third party involved, (e.g. if they turned out to be at fault), your no claim bonus very well may be reinstated if the costs are recovered by the third party's insurer.
Full No Claims Bonus Protection
Your insurer will often give you the option to protect your no claims bonus for an additional fee onto your premium. This means that by paying to have your no claims protected, in the event of a claim against your own insurance, you will not lose any of your years of no claim which you have built up. In turn, this means that the discount you receive from your insurer will be protected in the event of a claim. It is worth keeping in mind and reading the small print of your policy documents for any exclusions or limitations on your policy regarding no claims bonus protection.
Sometimes, your insurer may protect your no claims only up to the value of a certain amount or for a number of claims per year. For example you may be protected if you make up to two claims in three years only up to a certain value; if you exceed this amount then you may lose your no claims discount. Make sure you read your policy documents thoroughly and are fully aware of the limitations.
Step Back Bonus Protection
Our sales agents will often be asked what step back bonus protection actually means. Simply put, it means that if you make a claim or someone else makes a claim against you, you will lose part of your no claims bonus. For example if your no claims discount is 50% and you have a claim, then it could step back to a lower percentage, such as 30%, thus giving you less years no claims to avail of higher discounts on your policy. Usually you can lose two years no claims, so you may go from 5 years claim free 'stepped back' to 3 years and this in turn will affect your no claims discount.
The main things to remember when you are getting a quote for your motor insurance is to be honest with your insurance company as we have pointed out previously. Don't over exaggerate your years no claims to try and get a cheaper premium as you will have to produce proof of your no claims from your previous insurer. Ask questions about your quote such as:
- How long is the quote valid for?
- The length of time a quote is valid for can depend on the insurer or broker. Some may be valid for up to 30 days, or certain discounts applied to the policy may only be valid for a week. Discounts brokers can offer are subject to the underwriting insurer offering and holding that discount. Always ask when you get a quote how long it is valid for.
- Can you keep my no claims bonus if I don't own insurance for a period of time?
- If you move abroad or sell your car and don't have insurance in your own name for a period of time, some insurers may not honour your no claims bonus when you re-apply for cover if this period exceeds a certain amount of time, such as 2 years. Check with your insurance provider to see where you stand on this matter.
- Are you sufficiently covered for the level of driving and activities you undertake?
- Make sure your quote and policy meets your needs.
- Who can build up no claim bonus?
- Only the policyholder can build up a no claims bonus.
- Can a named driver build up a no claims bonus?
- No, you can only build up a no claims bonus if you are the policy holder. For example a young driver on their mother or father's insurance policy can build up named driving experience which may be converted into no claims bonus by some insurers but be sure to check as not all apply this rule. The young driver will need to produce proof that they have been claim free as a named driver on another policy when applying for their own policy.
Never be afraid to ask your car insurance expert questions when taking out cover. Our agents are fully trained professionals who understand the insurance industry in great depth and are here to get you the best cover and price to suit your needs.