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Car insurance no claims bonus

What is a no claim bonus, is it worth it, and what do insurers offer?

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There are a lot of car insurance discounts out there, but the no claims bonus might be one of the larger ones. It’s a safe driver discount that rewards drivers who don’t make car insurance claims with lower premiums.

How does the no claims bonus work?

In New Zealand, a no claims bonus works like this:

  • Each year you hold car insurance and don’t make a claim, you receive an increasing discount.
  • After five years, you reach Rating 1, which is the maximum discount available.
  • Your bonus will be reduced when you make a claim.

Typical discounts (or add-ons) for each rating might be as follows:

Rating 5 = +25%
Rating 4 = 0%
Rating 3 = – 25%
Rating 2 = – 45%
Rating 1 = – 65%

Generally, your bonus won’t be reduced for claims where you were not at fault. This means you can still make weather-related claims or accident claims where the other driver was clearly at fault without losing your no claims bonus.

The exact types of claims you can make without losing your bonus will be different depending on the insurer, so it’s a good idea to look at this if you’re planning on growing a no claims bonus.

When you switch car insurance, it’s also worth looking at whether your new insurer will recognise your no claims bonus.

Is the no claims discount worth it?

One of the big questions to ask yourself before taking out car insurance is whether you even want to bother with the no claims bonus.

It’s a discount, but the obvious downside is that you’ll risk losing it if you have to make a claim, so it might stop you from getting full use out of your car insurance. However, there’s another sneaky downside too.

The problem with no claims bonuses

The key to affordable car insurance is to shop around, and take your business elsewhere if you find a better deal. A no claims bonus can get in the way of this.

If you’ve worked hard to grow your bonus, then you might find it harder to switch to an insurer that will recognise your bonus. This means your insurance options are a lot more limited.

If you look only for insurers with a no claim discount, you could potentially be missing out.

Most people probably don’t consider who the underwriter is when they’re comparing car insurance, but it can make a big difference.

Pros and cons of using a no claims bonus

The good
  • Can get you a significant discount
  • Can be protected with various cover options
  • Will not necessarily be lost if you have to make a no-fault claim
The not-so-good
  • Might prevent you from effectively shopping around or accessing other discounts
  • Limits the range of policy types, options and insurance brands available to you
  • No-claims protection options come at an extra cost
  • Policies that feature a no claims bonus are not necessarily the most cost-effective options
  • Even with a protected no claims bonus, your premiums are still likely to increase following an accident
  • You lose your no claims bonus after going for an extended time without car insurance

Is it worth paying to protect a no claims bonus?

A protected no claims bonus is an extra-cost option you can add to your cover. It works differently depending on the insurer, but generally it will let you make up to two claims without losing your no claim bonus.

Your insurer will typically offer this once you’ve been with them for at least two years without a claim.

Whether you choose to get it is entirely up to you, but you should note the following:

  • This feature simply protects your discount, and your premiums are still going to increase following a claim.
  • It makes your car insurance more expensive since you are paying to keep a discount.
  • It’s only available when you stick with the same insurer for a while.

Like the no claims discount itself, this feature encourages people to stick with the same insurer, or group of insurers, rather than shop around.

For a fairer comparison, you might want to factor this into the prices when you’re comparing car insurance quotes.

If protecting your no claims bonus means you’re paying more for car insurance than you would with a provider that doesn’t offer this discount at all, then it might be time to make a switch.

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