In the living nightmare that is renewing car insurance, the quoted cost never seems to be the same as the premium a motorist pays because of the extra bits and pieces added on to a policy.
The optional extra that often causes most problems is a protecting the no claims discount.
Many drivers will recognise this as ‘protected NCD’ on the renewal quote and can cost £30 – £40 a year or more.
So how do no claims discounts work – and is paying to protect them worth it?
A no claims discount is cheap car insurance as a reward for not making a fault claim in the previous year. A no claims discount builds up to a maximum over at least five years – although some firms will extend the limit to nine years or more.
Protecting a no claims discount works by paying the extra to insure the NCD, but does not necessarily stop the cost of car insurance increasing if a claim is made.
The no claims discount is taken off the gross price of car insurance, so a driver with a 65% NCD on insurance costing £1,800 a year pays £630 after the £1,170 NCD deduction.
If that driver has a fault claim against insurance and the next year’s gross premium is £3,000 – the protected no claims bonus will kick in an still pay the 65% discount, reducing the cost to £1,050.
Without the protected no claims discount, the premium would rise and the reduction would be less because the some or all of the NCD carefully accrued over a number of safe driving years would be lost.
Assuming the NCD totals a 15% discount each year, losing two year’s of the bonus will reduce the discount from 65% to 35% – our driver with the £3,000 quote would then pay £1,950 for the same cover that would have cost £1,050 with NCD protection.
On average a driver with unprotect NCD loses a typical two year’s discount for making a fault claim., but the NCD paid differs between insurers, so drivers need to check their policies to see how NCD pricing affects them.