Car insurance is an essential part of owning a vehicle. It protects you financially in case of any accidents or damages that your vehicle may cause. One aspect of car insurance that often confuses policyholders is the No Claim Discount, or NCD. In this article, we will explore what the NCD is, how it works, and why it is important.
What is NCD?
The No Claim Discount (NCD) is a discount given to drivers who do not make any claims on their car insurance policy for a certain period. It is also known as the No Claims Bonus (NCB). The purpose of the NCD is to reward safe and responsible driving behavior by reducing the cost of car insurance premiums.
How does NCD work?
The NCD system works by rewarding drivers who remain claim-free each year with a percentage discount on their car insurance premium. The longer a driver goes without making a claim, the higher the discount they are eligible for. The discounts can range from 10% up to 50%, depending on the insurer.
For example, if a driver has a 50% NCD and their annual premium is $1000, they would only have to pay $500 for their car insurance for the next year. However, if they were to make a claim during that period, their NCD would be reduced, and their premium would increase.
NCD is transferable
Another important feature of the NCD is that it is transferable. If a driver sells their car and buys a new one, they can transfer their NCD to the new vehicle’s insurance policy. This means that they do not lose their discount even when they change vehicles.
However, drivers need to be careful when transferring their NCD. If they cancel their car insurance policy or fail to renew it for more than 90 days, they could lose their NCD.
Protected NCD
Some insurers offer Protected NCD as an add-on to their car insurance policies. Protected NCD allows drivers to make a certain number of claims without losing their discount. The number of claims that can be made without affecting the NCD varies between insurers, but it is typically one or two claims per year.
Protected NCD is especially useful for drivers who have built up a high NCD over the years and want to protect it in case they have an accident. However, drivers should be aware that adding Protected NCD to their policy will increase their premium.
Impact of Claims on NCD
As mentioned earlier, if a driver makes a claim on their car insurance policy, their NCD will be reduced, and their premium will increase. The amount by which the NCD is reduced depends on the insurer’s policy. Typically, a single claim can reduce the NCD by 20-30%, while two claims in a year can result in the loss of the entire discount.
Therefore, drivers should think carefully before making a claim on their car insurance policy. If the cost of repairing the vehicle is relatively low, it may be more cost-effective in the long run to pay for repairs out of pocket and preserve the NCD.
If I make a claim, will I automatically lose my NCD?
Making a claim does not necessarily mean that you will automatically lose your No Claim Discount (NCD), but it can affect the level of discount you receive on your insurance premium.
If you make a claim, your insurer will typically reduce your NCD by a certain percentage, which can vary depending on the terms and conditions of your policy. However, this reduction may not always result in the complete loss of your NCD. For example, if you have accumulated five years of NCD, the reduction may only bring you down to three or four years.
It’s important to note that the impact of making a claim on your NCD and insurance premium can vary depending on the circumstances of the claim, such as the amount claimed and who was at fault. It’s always a good idea to check with your insurer about how making a claim might affect your NCD and premium before making a claim.
Will I lose my NCD if there is a break in ownership of my vehicle?
If there is a break in ownership of your vehicle, your No Claim Discount (NCD) may be affected. When you sell your car, your NCD typically stays with you and can be transferred to your new vehicle. However, if you don’t have a new vehicle to transfer the NCD to, it may expire after a certain period of time, which is usually two years.
If you decide to buy a new vehicle during this two-year period, you may still be able to use your NCD, but this will depend on your insurer’s policies. Some insurers may allow you to use your expired NCD if you can provide proof of your previous insurance and NCD entitlement.
It’s important to note that different insurers have different policies regarding NCD, so it’s always a good idea to check with your insurer about their specific policies regarding NCD and breaks in ownership before making any decisions.
Can I insure against the loss of my NCD?
No, you cannot directly insure against the loss of your No Claims Discount (NCD). NCD is a discount that you earn over time by not making any claims on your insurance policy. It is not a separate product or insurance coverage that you can purchase.
However, some insurance providers offer an optional extra called “no-claims protection” or “no-claims bonus protection”. This is not the same as insuring your NCD but it can help to protect your NCD in certain circumstances.
No-claims protection allows you to make a certain number of claims without losing your full NCD. For example, if you have a protected NCD and you make one claim during your policy year, your NCD may be reduced by a smaller percentage than it would be without the protection. However, it’s important to note that even with NCD protection, your premium may still increase after making a claim.
It’s also important to note that not all insurance providers offer NCD protection as an optional extra and those that do may have different terms and conditions for the protection, so it’s always a good idea to check with your insurer about their specific policies regarding NCD protection.
Conclusion
The No Claim Discount (NCD) is an important feature of car insurance policies that rewards safe and responsible driving behavior with a discount on premiums. The longer a driver goes without making a claim, the higher the discount they are eligible for. The NCD is transferable between vehicles, and some insurers offer Protected NCD as an add-on to their policies. Drivers should be aware that making a claim on their car insurance policy can result in the loss of their NCD discount and an increase in their premium.
