Car insurance premiums are calculated based on the risk a driver is
perceived to have. If they are reckless with a record to prove it,
they will get higher rates than someone who is more careful on the
road. Similarly, if their car is considered unsafe, they will pay
higher rates. Most of these factors used when calculating cost of
insurance are more generalized and do not really reflect actual risk
of a driver.
There are drivers who own cars with a high group rating, signifying
a low safety level but who have never been involved in an accident
throughout their driving life. Similarly, there are drivers whose
cars are given a high safety rating but who get into accidents time
and again. Unfortunately for the former group, the fact that their
car has a high group rating does not work in their favour.
The same can be said of nearly all other factors
used to determine premiums and cost of claims. However, a sure fire way
to ensure that good drivers are rightfully rewarded is the use of no
claims discount (NCD). Also called a no claims bonus, this is a discount
given to drivers for staying a long time without filing a claim. The no
claims discount has a maximum lifespan of 5 years. Because of increasing
competition, some companies extend this to 6 or 7 years in a bid to net
more customers.
The no claims discount is calculated on percentage basis and varies from
one insurance company to another. Usually, the driver gets a 10%
increment every year on the previous year’s NCD. Over the next five
years, this percentage grows to between 65% and 75%, depending on the
percentage the company uses for its computations. If a driver goes for a
whole year without making a claim, they automatically get a 20% or 30%
discount. At the end of the second year, they receive a 30% discount.
The pattern is repeated over the next three years if the insurance
company is using the 5 year term. If they are using a 7 year term, the
discount accumulates for the next 5 years.
The no claims bonus is lost when a claim is made. Unless someone else
takes responsibility for the loss or damage caused and pays for it, the
policy holder will lose some or all the No Claims Bonus if the insurer
settles the claim. If they are involved in an accident with another car
and the other driver is found to be at fault, the driver will retain his
or her NCD as the other driver will pay up. If however they are forced
to share the costs because it could not be established who was at fault,
he/she will lose part or all of their NCD.
When one makes a claim during their fifth year of a no claims bonus,
some companies may be lenient enough to reduce the NCD/NCB period to two
or three years so one does not lose all their benefits; some may not. It
is therefore very important for policy holders to go through the no
claims bonus policy of any insurance company they are interested in
buying a policy from. The terms and conditions vary greatly so it’s only
fair that you understand what you get when you sign up for their cover.
Drivers can protect their NCB when they reach the maximum discount
allowed by paying a small fee. The advantage of protecting the NCD/NCB
is that you can make a claim when the need arises without losing your
accumulated interest. With this guaranteed bonus, you will pay much less
on premiums even when insurance rates go up.