No-Claim Bonus in Car Insurance

Find out more about no-claim bonuses and how they can benefit your car insurance policy right here with Savvy.

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, updated on February 15th, 2024       

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Looking to understand the ins and outs of a “no-claim bonus” in car insurance? A no-claim bonus, also known as a no-claim discount, is a valuable feature that rewards safe and responsible drivers with an ongoing discount on their car insurance policy. In Savvy’s comprehensive guide, we'll delve into the details of what a no-claim bonus is, how it works, and its impact on your car insurance premiums in Australia. 

What is a no-claim bonus in car insurance?

A no-claim bonus, also known as a no-claim discount (NCD), is a significant feature of car insurance policies in Australia. It’s essentially a reward system designed to incentivise safe and responsible driving. The concept is simple: if you hold a car insurance policy and don’t make any claims during a specific period, you become eligible for a no-claim bonus. This bonus is typically applied as a discount on your car insurance premium, resulting in cost savings for policyholders.

The no-claim bonus acts as recognition from insurance providers for being a low-risk driver. By not making claims, you demonstrate your ability to drive safely and avoid accidents. It’s a way for insurers to acknowledge and reward your good driving history. As a result, you can enjoy lower insurance premiums and potentially save a significant amount of money over time.

How does a no-claim bonus work?

How a no-claim bonus works is relatively straightforward. When you purchase a car insurance policy, you start with a base premium. If you go for a specific period, usually a year, without making a claim, you’ll receive a no-claim bonus at the end of that period. This bonus is typically calculated as a percentage of your base premium and is cumulative over time.

As an example, if you have a comprehensive car insurance policy for three consecutive years without making any claims, you may be eligible for a no-claim bonus of 30% or more. This percentage discount is then applied to your premium, reducing the cost of your car insurance. The longer you maintain a claims-free record, the higher your no-claim bonus percentage becomes, resulting in greater savings.

Insurers generally assign ratings to cars with a no-claim bonus, starting at Rating 6 and increasing by one for each year you go without a claim until it reaches Rating 1, at which point it reaches its maximum and won’t increase any further.

What is the maximum no-claim bonus percentage?

The maximum no-claim bonus percentage varies between insurance providers. However, some insurers offer a maximum no-claim bonus of up to 60%. This means that if you have a long-standing claims-free record, you may be eligible for a significant discount on your car insurance premium.

However, it's crucial to understand that the maximum no-claim bonus percentage is not automatically granted to all policyholders. Different insurance companies have varying criteria and conditions for qualifying for the maximum discount. Factors such as the number of years without claims, the type of policy and the individual insurer's guidelines can influence the maximum no-claim bonus percentage you can obtain.

To determine the maximum no-claim bonus percentage offered by your insurance provider, it's important to carefully review the terms and conditions of your policy or contact your insurer before you buy your policy. This can help you learn specific details about the highest discount you can receive based on your claims history.

Can I protect my no-claim bonus?

It’s possible to protect your no-claim bonus with an additional policy feature known as “no-claim bonus protection.” This optional coverage provides an extra layer of security for your hard-earned bonus. With no-claim bonus protection, even if you make a claim, your accumulated no-claim bonus remains intact.

Without this protection, making a claim could result in a reduction or complete loss of your bonus, leading to an increase in your premium when renewing your policy. By opting for no-claim bonus protection, you can safeguard your discount and enjoy the benefits of lower premiums, even in the event of a claim. It can provide peace of mind knowing that your no-claim bonus is protected.

It's important to note that no-claim bonus protection usually comes at an additional cost. Because of this, it’s important to weigh up the cost of this feature against the cost saving of your bonus before adding it to your policy.

Common questions about car insurance no-claim bonuses

Can I still keep my no-claim bonus if the accident wasn't my fault?

Yes – if you're involved in an accident that wasn’t your fault, you should still be able to keep your no-claim bonus. Insurance providers typically have provisions in place to protect your bonus in such situations. However, it's essential to report the incident to your insurer and provide them with all the necessary details. They will assess the circumstances and determine if you're eligible to maintain your no-claim bonus.

Can I transfer my no-claim bonus to another person?

No – no-claim bonuses aren’t transferable between individuals. Your no-claim bonus is specific to you and your driving history, so it can’t be transferred to another person, even if they’re listed as an additional driver on your policy. Each individual must accumulate their own no-claim bonus based on their claims history and driving record.

Can I use my no-claim bonus on a new car insurance policy?

Whether your no-claim bonus carries over to a new policy will depend on your new insurer. When switching insurers or getting coverage for a different vehicle, you can provide proof of your no-claim bonus to the new insurance company, but this isn’t a guarantee that it’ll be carried over. It's important to check with your new insurer regarding their specific policies and requirements for accepting and applying a no-claim bonus.

What happens if I have a break in my car insurance coverage?

If you have a break in your car insurance coverage, it can impact your no-claim bonus. Insurance providers consider continuous coverage and claims history when calculating your discount. A significant gap in coverage, such as two or more years of not having insurance, may result in the loss of your no-claim bonus.

When renewing or obtaining new car insurance, it's crucial to check with your insurer to understand the specific implications of a coverage break and explore options to mitigate any potential impact.

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