Motor Insurance - What Is A No Claims Bonus?
It’s a term you hear bounded about often in the world of motor insurance, but it is also one of the least understood: the ‘no claims bonus’. So, what is a ‘no claims bonus’ and how can it help me?
The basics
As you can probably work out, a no claims bonus is ‘gift’ given to a policyholder if they do not claim on their insurance during the period of the insurance. In effect what this means is that if you reinsure your motor car with the same car insurance provider, you’ll be given a good conduct discount on what would otherwise have been a full premium insurance policy.
The misconception
There are two fundamental flaws with the no claims bonus: one, the understanding that you are going to reinsure with the same car insurance provider. In effect, what the insurance provider is saying to you is “don’t look elsewhere for your car insurance, because we are giving you a discount for being a good driver”. Fine; however, this works on the assumption that you cannot find cheaper motor insurance elsewhere – such as on the internet. Unfortunately, this assumption can often be wrong, and in most cases motorists are reluctant to change motor car insurance provider because they have fallen into the trap of believing they cannot get a better deal elsewhere.
Second, there is a fundamental understanding that your renewal policy with a no claims bonus will be cheaper than your previous policy. Actually, considering you have made no claim on your insurance, not an unreasonable concept to arrive at. However, not always the case – although you may be given a no claims bonus, the premium is set by the amount of claims that were made, which you have no say in as you didn't make a claim! So, it is very possible to have a good conduct no claims bonus and still be paying higher premiums in year two than you were in year one!
The 5-year limitation
Naturally with every year that you didn’t make a claim against your motor insurance provider you would expect to get an additional no claims bonus. In reality this is not the case. Most motor insurance policy providers limit the period of no claims bonuses to 5 years of no claims. Thereafter, not making a claim is not helping to reduce your insurance premium.
As such, although you can surely make substantial savings with a no claims bonus, don’t let this lull you into thinking you cannot find motor insurance cheaper elsewhere and check out some of the online car insurance quotes to find out if you can get a cheaper car insurance quote than you are currently getting – even with your no claims bonus. You never know, you might actually be pleasantly surprised.
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