No-claims bonus explained: Here’s what you need to know

A no-claims bonus is a discount insurance providers offer policyholders for each claim-free year whilst driving. The longer the policyholder drives without making a claim, the bigger the discount on their premium could be at renewal. For example, if you’ve been driving without claiming for three years, you’ll have earned three years of no-claims bonuses.

The no-claims discount can vary depending on the insurer but can be as much as 30% off the premium for a claim-free year and as much as 60% off after five years. The more years of no-claims bonus you have, the lower the risk you demonstrate to insurers. A healthy no-claims bonus can significantly reduce the cost of car insurance.

What’s the difference between a no-claims bonus and a no-claims discount?

A no-claims bonus and a no-claims discount both refer to a reduction in insurance premiums given to policyholders who have not made any claims over a certain period. However, there is a slight difference between the two terms.

A no-claims bonus is a reward given to drivers who have not made any claims on their motor insurance policy. The bonus is usually given as a percentage discount on the policyholder’s annual premium. The longer the driver goes without making a claim, the bigger the no-claims bonus they receive.

In contrast, a no-claims discount refers to the actual discount or amount applied to the policyholder’s premium because of their no-claims bonus.

What happens when you claim on your motor insurance policy?

Your no-claims bonus is usually affected if you claim on your motor insurance policy. The extent to which your no-claims bonus is affected depends on your insurance provider and what the claim is for.

Generally, if you make a claim, you will lose some or all of your no-claims bonus. However, there may be some scenarios where your no-claims bonus is not affected. For example, If you were hit by another driver who agrees the accident was their fault. In this case, if the insurer can recover all the costs from the other party, your no-claims bonus will likely not be affected.

Is no-claims protection worth it?

Most insurers allow drivers to protect their no-claims for an additional fee. Protected no-claims policies allow the policyholder to make a certain number of claims over a specified period without affecting the no-claims bonus on their premium. These policies typically benefit motorists that have built up a healthy no-claims discount.

However, your insurance premium could still increase even with a protected no-claims bonus.

How to find out if you have a no-claims bonus

You could be eligible for a no-claims bonus if you haven’t made any claims during the policy period. To find out whether you have a no-claims bonus, you can check the following documents:

• Car insurance renewal letter.
• Cancellation letter.
• Letter from your insurance provider confirming your no-claims discount.

If you switch to another insurance provider, you may need to provide them with evidence of your no-claims bonus. You usually have up to 21 days to provide proof of your no-claims bonus. Some insurers may also require the original copy of your documents as proof of no-claims and may not accept photocopies.

Your new insurer may contact your previous provider to confirm your proof of no-claims discount.

You may also be able to access information regarding your no-claims bonus online through the provider’s website if you have registered your details on their website. You can also ask your insurance provider to confirm if you have a no-claims bonus.

Some insurers may forward details of your no-claims bonus to your new provider when your existing policy expires.

What is the maximum no-claims bonus you can get?

Insurers typically cap the number of years of no-claims bonus you can earn. The maximum number of years will vary depending on the insurer but typically ranges from five to nine years. After reaching the maximum number of years, any additional no-claims years will not result in further discounts on your premiums.

Your insurer should provide full details regarding no-claims bonuses in their policy documents.

How much discount can you earn with a no-claims bonus?

The amount of no-claims discount you can earn depends on the insurer but will typically increase for each claim-free year. For example, some insurers may offer a 30% discount for the 1^st claim-free year. On the other end of the scale, the maximum no-claims discount you can earn is usually around 70%.

You can usually find specific details regarding how much no-claims discount you can earn in the policy documents. Otherwise, you can speak to your insurer.

Can you have two sets of no-claims bonuses?

You cannot use or share your no-claims bonus on multiple vehicles, as your no-claims bonus is applied to one vehicle at a time. However, if you have two vehicles on separate insurance policies, you can earn a no-claims bonus on each policy. Furthermore, you can usually transfer your no-claims bonus from one vehicle to another.

Some insurers may offer a mirrored no-claims discount allowing the driver to apply the no-claims discount they earned on one vehicle to another vehicle they own or drive. A mirrored no-claims discount allows the driver to have the same discount on both vehicles rather than building a no-claims bonus from scratch on the second vehicle.  

Can you lose a no-claims bonus if an accident wasn’t your fault?

In some cases, even if an accident wasn’t your fault, you may lose some or all your no-claims discount if your insurer cannot recover the costs of the claim. For example, if your car has been stolen or an uninsured driver has hit your parked car.

If you have a comprehensive policy, windscreen claims are unlikely to affect your no-claims bonus. However, it helps to double-check this with the insurer beforehand.

Some policies include an uninsured driver promise, which means that your no-claims bonus will be restored if an uninsured driver hits you.

Can you transfer a no-claims bonus to another car?

A no-claims bonus is rewarded to the policyholder for each claim-free year. If the policyholder changes their vehicle, they can usually transfer their no-claims bonus to their new vehicle.

However, be mindful that insurers may have different policies regarding the transfer of no-claims bonuses between vehicles. Therefore, checking with your insurer before making any changes is always best.

Can you transfer a no-claims bonus to another insurer?

A no-claims bonus can usually be transferred to another insurance policy or provider. When you switch, you can ask your current insurer to provide a document confirming your no-claims bonus entitlement. You can then provide this document to your new insurance provider, who will take it into account when calculating your premium.

The time limit for submitting proof of no-claims can vary between insurers but is typically between seven and twenty-one days.

Does learner insurance count towards a no-claims bonus?

Some insurers allow learner drivers to earn a no-claims bonus on their provisional insurance policy. Once the learner passes their test, they may qualify for a no-claims discount if they have a claim-free year when they switch to a new policy. Other insurers may offer 10-month policies so the policyholder can earn their no-claims bonus faster.

Can you earn a no-claims bonus as a named driver?

A no-claims bonus only applies to the main driver of the vehicle. Therefore, a named driver cannot earn a no-claims bonus on the same vehicle or policy.

However, some insurers may offer a named driver no-claims discount, which can be transferred to a main motor insurance policy. The named driver discount is usually less than the full no-claims bonus the policyholder can earn. However, it can still help to reduce premiums.       

Should you avoid claiming to protect the no-claims bonus?

Deciding whether to claim on your car insurance can be a difficult decision. Claiming on your car insurance will more than likely affect your premiums. If the damage is substantial, it may be cheaper to claim on your car insurance than pay for the repairs yourself. However, you may risk losing some or all of your no-claims bonus.  

You should inform your insurance provider about any incident, even if it wasn’t your fault or you don’t intend to make a claim.

You shouldn’t lose your no-claims if you report an accident to your insurer but decide to pay the other party involved instead of making a claim.

Can you earn a no-claims bonus on a company car?

It is possible to earn a no-claims bonus on a company car if you are the policyholder on the insurance policy that covers the vehicle. However, a no-claims bonus earned on a company motor insurance policy may not always be transferrable to a personal motor insurance policy.

If you have been driving a company car and not made any claims on the insurance policy, it’s worth checking with your insurance provider to see if they will accept your company car no-claims bonus when you switch to a personal policy.

How long does a no-claims bonus last after a policy expires?

The period that a no-claims bonus lasts can vary from one insurer to the next. Generally, most insurers will allow their driver to retain their no-claims bonus for up to two years after their motor insurance policy has expired. After which, the no-claims bonus may expire or become invalid.

This is because the no-claims bonus is calculated based on the number of consecutive years that the motorist has been driving without making a claim. Therefore, a break in insurance coverage may mean the driver must start earning their no-claims bonus from scratch.  

Final thoughts

Building up a healthy no-claims bonus is an effective way to save money on your car insurance. However, it doesn’t always guarantee the best deals at renewal. It helps to shop around to get the most out of your no-claims bonus. You can get a quote online and compare prices with and without a no-claims bonus to see how much you could save. Alternatively, contact a broker like A Choice, who can do most of the legwork for you.

Be mindful that there may be a year-on-year premium increase regardless of how you drive. So it’s also worth speaking to your insurance provider to ensure you’re comfortable with how the no-claims bonus works.