Protecting your no claims discount; is it worth it?

Once you have built up a no-claims discount under your motor insurance policy you may be reluctant to lose it if you need to make a claim. Many motor insurers, therefore, offer to protect your no-claims discount (NCD) if you are prepared to pay for the privilege of doing so.

It can be difficult to know whether the additional amount that you pay to protect your NCD outweighs the savings that you would make if you chose not to. There are a number of factors that you need to take into account when making the decision.

How NCDs Work

Insurers like drivers who do not make claims and, therefore, offer a no-claims discount for each complete policy year where there has not been a claim. The NCD is effectively a discount applied against the base premium that you would be charged.

For each year without an accident, further savings to the base premium apply. The maximum NCD is usually five years, at which point savings may be up to 75%.

The Benefits of Protection

Once you have completed five years of driving without an accident and are achieving the maximum savings available under your car insurance policy, it can be frustrating to lose your full NCD if you need to make a claim.

By adding NCD protection to your policy, you are able to avoid starting at the bottom rung of the ladder again. Some insurers even allow you to have multiple claims without it affecting your NCD.

The Case Against

Not all insurers deduct all of your NCD if you have an accident and it is common for drivers to lose just two years for a first claim.

Additionally, protecting your NCD does not protect you against premium increases, as what you are paying to protect is the discount against the base premium the insurer would charge you. Your claims history is one of the things that insurers use to set premiums, so if you have made claims, this can have an impact on the base premium.

The cost effectiveness of protecting your NCD diminishes over time if you do not need to make any claims under your insurance policy. At first, the cost of protecting your NCD is lower than the additional premium that you would need to pay if you made a claim and lost your NCD.

This cost of protecting your NCD ceases to be a saving, however, if you have a number of years without making a claim. Instead, it simply becomes an additional charge.

It is always worth remembering that you can take your no-claims discount with you if you switch insurers. Premiums vary between different insurers, as do the terms and conditions of policies. By comparing what is offered by a number of insurers you can often make savings and may benefit from enhancements to your cover.