Car insurance no-claims bonus: A guide

Read on to learn more about this nifty bonus and discover whether you qualify for it, what the limitations are, and what you can do to protect it.

What Is the no-claims bonus?

The no-claims bonus is exactly what the name implies — a bonus you get for not making any claims on your insurance. It's sort of like a reward.

Insurance providers work with risk. When they decide to cover someone, they use information to try and understand how much risk someone represents — i.e. how likely it is that you'll need to make a claim.

As there are no guarantees in this area, insurance providers work on probability instead. If you have 15 years' worth of insurance history and have never made a claim, you can be seen to represent less risk than someone who has made two claims in five years. Insurance providers may decide to offer discounts to 'not so risky' people.

Who generally gets a no-claims bonus?

Anyone can get a no-claims bonus. You just need an insurance policy and a history of not claiming on it. But the value of the bonus will probably be different depending on how long you've been claims-free.

Generally, each consecutive year which you don't make a claim on your policy will add to your bonus. So, if you don't claim for a whole year, you might get a discount on policies you take out in the future. Remain claims-free for a second year, and your discount might increase. Add a third year of no claims, and the discount may increase even more. Though this might not be the case indefinitely — your insurance provider have a maximum limit for your no claims. For example, you might not get any further bonus after you've passed five years of no claims, but different providers may have different limits.

How long does a no-claims bonus last?

Let's say you take out a car insurance policy and don't claim for two years. This gives you two years' worth of no-claims bonus. But then you go away to uni, or your circumstances change, and you don't drive — and so don't need insurance for a year. Can you still benefit from the no-claims bonus after a break?

In some cases, yes. The no-claims bonus might not expire straight away, and you might be allowed a period where you aren't insured before the bonus expires. This probably won't be a very long period, though — different insurance providers have different policies, but many have a limit of two years. You might be able to look at your insurance provider's no-claims bonus terms and conditions online to find out when your discount would expire.

However, if you have a car, you will need to be insured, even if you are not driving — unless you have registered your vehicle as off the road. So, the above only applies if you have made a Statutory Off the Road Notification (SORN) to the DVLA or if you do not have a car at all during this period. Effectively, the only way to keep a no-claims bonus without a car is to make sure the original bonus does not expire.

No-claims bonus protection

It's sometimes possible to protect your no-claims bonus. This means you'd be able to make a claim on your insurance without losing your bonus or discount. To do this you'll probably have to pay a bit extra to protect your bonus in this way, and there might be some limitations like how many times you can claim without losing your discount.

So, should you protect your no-claims bonus? Is it worth it? It could be worth it — if you suffer an accident that's not your fault, and need to claim on your insurance, you'd lose your bonus if you haven't protected it. The protection is designed to add an extra safety net for anyone who needs to use the insurance in an emergency. It's a good idea to bear this in mind when weighing up your options — in your situation, is the protection worth the additional cost?

What is no-claims mirroring?

What is no-claims bonus mirroring, and how does it work? It essentially means you take the no-claims bonus you've got on one vehicle and use this to get a discount on another vehicle. In other words, you 'mirror' the no-claims bonus on car A to get a discount for car B.

Though this might not always be an option - it'll be up to the insurance provider to decide whether or not you can apply a no-claims bonus to another vehicle.

A few final tips...

No-claims bonuses can be great for saving a bit of money on your insurance, here are a few things to bear in mind:

• You might want to consider developing a no-claims bonus if possible. It could be more cost-effective to let your discount build than to claim on your insurance for a small repair.
• No-claims bonus protection could be something else to consider too. It all depends on your personal circumstances.
• There will usually be limits and expiry dates attached to your no-claims bonus. Keep these in mind, particularly if you don't need insurance for a while.

Urban Jungle is not a financial advisor and information in this article should not be taken as advice or recommendation.