We’re diving into no claim bonuses, discussing what they are and if they’re really worth it. If you’re unsure, then you’ve come to exactly the right place.
Strap in and let’s go over much of what you need to know about no claims bonuses (at PD Insurance we call it a ‘Claims Free Discount’). Importantly, we also explore whether they’re worth protecting…
No claim, big gain?
A no claims bonus is when your insurance provider offers you a bonus in the form of a reduction on your monthly/annual fee if you don’t make a car insurance claim over a certain period.
It may be that every year you pay your car insurance without claiming you’ll get a discount on top of your previous year’s discount, up to X number of years without claims. Or it may be that once you hit the five-years-without-claiming mark, you’ll reach the maximum discount you can receive in Australia.
If you were to make a claim from your insurance, your bonus is reduced by X years, depending on your insurance provider. Some will be lenient on claims that aren’t your fault, like something weather-related for example.
Most commonly a no claim bonus is to award you for being a careful driver who hasn’t gotten into any accidents (and thus haven’t cost your insurance provider anything) OR, you might have gotten into an accident and chosen to cover the cost yourself as not to affect your premiums.
What makes this tricky is that if you’re in a car accident where the other driver doesn’t have insurance, you’d lose your no claim bonus if you were to claim from your insurance for damages caused. Also in the case of vandalism or theft of your vehicle the same applies.
PS: Do you know if car insurance pays even if an accident is your fault?
Should you protect your no claim bonus?
As you head closer to the five-year mark of the no claim bonus / claims free discount, the discount will start to significantly reduce your instalments. For this reason, some people choose to pay an added fee for protection of their no claim bonus. Just note that this isn’t available with all insurance providers.
Essentially this means that, for an additional fee, if you claim from your insurance for an accident your no claim bonus won’t get penalized.
So let’s imagine that you’ve just made it to your 5th year with your insurance. You’ve now got a nice discount on your insurance premium. And, because you’re paying the no claim bonus protection fee, when you have an accident, you can claim from your insurance for that accident without having your discount reduced (or revoked).
Key points to remember
We recommend that you keep the following in mind:
- No claim bonus protection only protects your discount; your premiums are still going to increase if you do make a claim.
- The added expense will increase the cost of your premium.
- It’s only available when you stick with the same offering insurer for a while.
So… is it worth protecting? It’s tricky to give a blanket answer for everyone because it really depends on your situation.
Questions to ask yourself
We recommend asking yourself these questions:
- How much does this increase my premium by?
- What’s my driving history like?
- How much driving do I expect to do in the next few years and under what conditions?
- Am I saving money in the long run with this additional cost?
- Am I happy to stay with my insurer for a number of years yet? (Read: Five signs you need a new car insurance provider)
Answering the big question: is a no claim bonus worth it?
No claim bonuses are a great benefit to take advantage of if you have them at your disposal. Who wouldn’t take a discount on their comprehensive car insurance?
However, what’s most important when it comes to motoring cover is that you’re well protected. You’re paying car insurance to insure your vehicle in case of accidental damage and to help safeguard your finances if you accidentally damage others’ cars and property.
While it’s amazing to reduce these costs where possible, accidents, like the word suggests, do happen. So make sure your insurance cover will give you what you really need if you find yourself in this situation.
Another thing to keep in mind is that insurers look at many factors to assess your overall risk profile. This includes car type (and its safety rating), car age, car usage, garaging situation and your claims history (plus more). While a no claims discount is valuable, there are many more factors attributing to your premium. Even if you don’t claim for an accident, your premiums will still rise if your risk level increases.
Read our article ‘5 ways to lower your car insurance premium‘ for more insights.
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