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Is it worth it to protect your no-claims discount?

By raccars Published

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Insurance can be a major cost in motoring and motorists are always looking for ways to reduce premiums. Experienced drivers can build up a substantial 'no-claims' discount over the years, which can eventually rise to 80% off the standard policy premium. Over five years, this can mean an annual saving of £150 on the average policy. It is no surprise then that many motorists will want to protect their no-claims discount and many insurers offer tempting add-ons to their insurance policies to do just that. A 'protected' no-claims discount sounds reassuring. After all, having spent years building up that discount it would be a shame to see it disappear in an instant in an accident that might not even be our fault. But is the protected no-claims policy all it seems to be?

Sadly, the answer may be no. Many motorists take out such policies in the assumption that their premiums will not be affected in the event that they make a claim on the policy, but this is simply not true. The protected no-claims discount policy protects against an increase in the no-claims element of the price calculation, not an increase in the premium amount itself. It sounds confusing and it is. Many motorists are surprised to see an increase in their premium after making a claim on their 'protected' policy, because they don't understand how the policy works.

The actual premium is worked out on a number of factors, including your age, the car you drive, where you live, your previous motoring history and so on. This results in a premium figure: for example £400. The no-claims discount is then taken off this figure. So, if this was 25%, the net cost would be £300. If, however, you have an accident, then the insurer will recalculate your premium based on this change to your motoring history. There is no legislation in how they do this, so they may decide that you are now a risky driver and increase the premium to £600. Because your no-claims discount is protected, they will still take 25% off this figure, but now your final cost has risen to £450. The situation is made even more uncertain because some firms will say in the small print that the no-claims discount will be rolled back by a few years in the event of an accident.

Most motorists would agree that a protected policy should deliver what it says and more clarity is needed to work out if such policies are actually worth having.

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