Car insurance no claim bonus

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

There are a lot of car insurance discounts out there, but the no claim 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 claim discount work?

In Australia, a no claim 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 by two years when you make a claim.

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 claim 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 claim bonus.

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

Is the no claim 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 claim 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 claim bonuses

The key to affordable car insurance is to shop around, and take your business elsewhere if you find a better deal. A no claim 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.

In fact, most Australian car insurance providers who participate in the no claim bonus program all have one thing in common; they’re underwritten by Auto & General Insurance. The underwriter is the actual insurance company behind various insurance providers. Underwriters generally don’t sell policies directly, but instead sell them to insurance providers who then sell them onto you, the customer.

A portion of the premiums you pay will typically go to the underwriters.

In Australia, when you choose to cultivate a no claim bonus, you might need to stick to insurance brands that use Auto & General as their underwriter. And no matter which one you go with, you’re paying premiums to the same insurance company.

If you can find better value for money elsewhere, with a car insurance brand that’s not underwritten by Auto & General Insurance, then a no claim bonus might be holding you back and actually leading to higher premiums than you could find elsewhere.

For example, Woolworths car insurance (underwritten by Hollard Insurance Company) offers a Drive As You Go cover option. For someone who only drives occasionally, Drive As You Go might offer a bigger discount than the no claim bonus.

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 claim 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-claim protection options come at an extra cost
  • Policies that feature a no claim bonus are not necessarily the most cost-effective options
  • Even with a protected no claim bonus, your premiums are still likely to increase following an accident
  • You lose your no claim bonus after going for an extended time without car insurance

Is it worth paying to protect a no claim bonus?

A protected no claim 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 claim 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 claim 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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