The amount of discount you earn on your car insurance premium increases with each year of claim-free driving. This is called a no-claim discount.
The longer you drive without making an insurance claim, the bigger you should expect your discount to be. For instance, if you get a 10% discount after driving for one year with no claims, driving for five years without claims can increase the discount up to 50% or more.
But this is not always guaranteed.
So, we took a look at how much car insurance can go down after one year of no claims.
What Are The Common Reasons Why Car Insurance Rates Go Down?
Before we go into how much car insurance can go down after one year of no claims, let’s first understand the common reasons why car insurance may go down.
Typically, car insurance costs go down for several reasons. These include:
- You drive safely for three years — after an infraction or an accident.
- You grow older — most substantial reductions in car insurance rates often come as you grow older, especially after the age of 25 years.
- You switch insurance companies — different companies have different car insurance premium rates.
- You switch to a cheaper car from an expensive/luxury car. More affordable cars cost less to insure compared to luxury cars.
- Discount — for example, if you didn’t make a claim for one year and you have a No-claim discount (bonus), your car insurance may go down.
How Much Does Car Insurance Go Down After One Year Of No Claims?
There is no straight answer to this question. Mostly, it depends on your record, type of policy, and insurance provider. But it also depends on whether or not your policy has a no-claims discount.
If your policy has a no-claims discount, how much car insurance goes down after one year of no claims is usually between 10% and 15%. But this also depends on your insurer and several other factors called insurance rating factors.
Insurance rating factors include the policyholder’s data, records, and information determining their risk level and eventually their car insurance premiums. They’re vehicle, person, and driving-related factors that predict how likely you are to make a claim.
These include:
- Car-related factors (car make and model, size, age, etc.).
- State coverage requirements or laws regarding insurance premiums.
- Demographic characteristics (credit score, age, gender, marital status).
- Where you drive (address, location).
- Personal driving habits (driving experience and record, yearly mileage, etc.).
Typically, the less risky you appear, the lower your insurance premiums. This means your car insurance policy will be cheaper.
What is No-Claim Discount (NCD)
A no claim discount, also called a no claim bonus, is a discount your insurer applies on your insurance policy when you go for a given period without making any claim. It is like a safe driver reward that decreases your premium rates.
Insurers promote the no-claim bonus on car insurance policies to reward safe drivers and drivers who don’t claim their insurance. This means you cannot claim NCD as a right but must earn it by maintaining a claim-free record.
Insurers calculate and apply your no-claims bonus each year when you renew your policy. Sometimes this happens at the start of a new policy.
Note that no claim bonus is not usually calculated on your entire car insurance premium amount.
First, NCD isn’t applicable for third-party liability insurance. So, you earn the no claim bonus percentage calculated on the total premium less the third-party liability premium. This is why many insurers state that you only qualify for a no-claim bonus if you have comprehensive car insurance.
In other cases, you can pay for a claim discount.
How Does No Claim Discount Make Car Insurance Go Down?
When you don’t make a claim, you can enjoy insurance discounts through your No Claim bonus. But this depends on your insurer and state.
Every insurance provider has a different approach to the no-claim discounts they offer and how long it takes you to earn those discounts.
In many cases, your insurance will go down by 5-20% in the first year of no claim, depending on your insurer.
After the first year, this discount increases each year, usually by 5%, if you don’t make a claim. But it only increases up to a maximum discount, usually 50-60%, and a number of years — usually 5-6 years. Your insurer will spell this out on your policy.
For example, if your premium is $1,000 a year and you have a 20% no claims discount on your policy, it means you’ll pay $800 on your next premium renewal. You will have saved $200 on your next renewal.
When Is No Claims Discount Terminated?
Your insurer will terminate you no claims discount when either of these situations occurs:
- You make a claim during a policy year.
- You don’t renew your policy within 90days of expiry.
- If you go off the road (Not driving) for two consecutive years. NCD lapses after two years of not driving. After this period, you may return to the road as a risky driver.
You need to inquire from your insurance agent or insurance company when and how your no claims discount will be terminated and whether they can renew it.
Can I Transfer No-Claims Discount To Another Provider Or Policy?
Yes, you can take your no claims discount when you upgrade or downgrade your policy or switch car insurance providers. But you’ll have to prove that it exists in the first place.
Also, there’s no guarantee that you’ll get the same level of discount as your current discount because that depends on your new insurer’s bonus policy.
In addition, you don’t lose your no-claims discount when you buy a new car. How?
NCD belongs to you and not to the car. So, if you’ve earned an accumulated NCD bonus on your car, and you decide to buy a new car, you can transfer them to the new car.
What Other Ways Can I Lower My Car Insurance Premiums?
If you don’t have a claims discount, you can still take steps to reduce the cost of your car insurance. Some of the things you can do include:
- Dropping unnecessary coverage on your car insurance or reducing coverage limits.
- Volunteer to increase your insurance deductible
- Take driver safety courses that can lower your premium.
- Check with your insurer for other discount programs like a good student discount, experience driver, insuring multiple cars, and installing anti-theft and security devices on your car, among others.
- Shop around to find an insurance provider with the best offers and discounts.
Final Thoughts
Being careful on the road has many more benefits, including reducing your car insurance premiums. Your insurer appreciates your care, safety, and candor on the road if you don’t make a claim and rewards you with safe driver discounts like no claims bonus. But if your insurance provider doesn’t offer NCD, you need to think ahead and purchase it as an add-on to your policy. You can’t always control everything on the road, and making a claim is inevitable from time to time.
