How no-claims discounts and insurance excesses work

No-claims bonus (NCB)

Each year you have a policy but don’t make a claim, you gain another year’s NCB, sometimes known as a no-claims discount (NCD).

A reward for enjoying each year of claim-free driving, it's this discount which makes insurance increasingly affordable as after five or six years your insurer should give you a discount of up to 65% - some even go as high as 70%, although this is rare. 

Once you’ve proved that you’re a good driver, you can even protect your no-claims bonus so that it’s not lost in the event of a claim.

However, a common misconception is that because you've got a protected no-claims bonus, your premium won't go up the next time you renew your insurance. Sadly that's not the case as you can still expect a premium increase - especially if you're making an at-fault claim. But the premium increase should hopefully be less than if you didn't have that protection.

Excess

Your excess is the contribution you’ll have to make in the event of a claim, before your insurer pays out anything. The excess is there to stop people making trivial claims; as it’s usually set at no less than £100, if you scrape your bumper and the bill is £150 to patch it up, it’s hardly worth putting in a claim.

You can normally choose the level at which your excess is set; the greater your excess, the lower your premium. However, new drivers tend to have the excess set at quite a high level (often £500 or more) by their insurer, as the chances of a claim being made are high.

It's easy to assume that it's a good idea to opt for the biggest excess on offer, to keep your insurance premium as low as possible. But as this news story relates, taking this route really isn't a good idea...