1 October 2012

Is a protected NCD on your car insurance worthwhile?

Is protecting your No Claims Discount worth the extra cost? Are you just being kidded into paying more to insure your insurance or does it have real value?

So you've built up 5 years No Claims Discount on you car insurance. Well done, your premiums should be dropping, though it's funny how they don't drop as much as you hope. But now when you renew your insurance, there's a new question. Do you want to pay a little bit more to protect that hard earned No Claims Discount?

If you take out the additional protection you will typically be allowed two claims over a three to five year period without your No Claims Discount being affected, some insurers now allow you to protect it "for life”.

If you don't take the insurance and make a claim, your No Claims Discount will usually be reduced by two years per claim. Again, this is subject to the insurance company's policy but shows that all is not lost if a claim is made.

Don't make the mistake of believing that a protected No Claims Discount will protect you from rising premiums after a claim though because it won't, though it will usually reduce the impact considerably.

Now that insurers allow you to "protect” your No Claims Discount, it's not as good an indicator of the actual risk you present, but your claims history still is.

According to research conducted by Moneysupermarket.com, a driver with a five year unprotected NCD would see premiums rise by 37% after one claim against just 3% for a protected NCD.

Those figures look pretty convincingly in favour of protecting your NCD, but they looked a bit closer. Protecting your NCD currently costs around 10% of your premium each year. After a claim free year, the driver with the unprotected NCD would go back from 3 to 4 years NCD. The driver with the protected NCD is already at maximum discount, so the gap in premium closes though the protected NCD still wins. By the third year it is marginal but by the fourth, it would have paid not to pay the extra to protect the NCD.

The longer a driver pays for protecting the NCD without claiming, the less worthwhile it becomes. Obviously, if you never claim you are simply paying more for your insurance than you need to.

From this we can surmise that the main benefit of protecting your No Claims Discount is actually to cushion you from a sudden rise in premiums.

If you'd find that sudden increase in premiums difficult to cope with financially, there's a strong argument for protecting your No Claims Discount. Similarly if you have a nagging feeling that you're about "due” for an accident, you may be better off keeping that protection.

The final point is that you already have fully comprehensive cover when, from a legal point of view, you could pay for just 3rd party. You may simply be happier to pay the extra and get more cover.

For those that can accept a greater risk, it could be an easy way to save 10% on your car insurance. Of course, you should always compare car insurance at renewal time to get the best deals around.