All you need to know about No-Claims Discount for car insurance

With various car insurance terms used, many car owners can easily get confused. There are also factors that can cause expensive insurance premiums, too.

And if you don't compare when shopping for insurance, you can end up paying much more for effectively the same coverage.

There are many ways to save on car running costs when it comes to ownership, and one of the first steps is understanding your insurance policy. With that, lets talk about one particular car insurance term; NCD.

What is NCD for car insurance?

No-Claims Discount, or NCD, is a discount that you, the policyholder, earns if you do not make a claim during a full policy term. A policy term usually lasts for 12 months, and you'll earn a 10 per cent discount each year.

Hence, if you terminate your car insurance before 12 months, you will not receive any NCD that you were set to earn by the end of the policy term.

Some insurance companies may use different names to describe NCD, such as NCB, or No-Claims Bonus. They're effectively the same thing.

The discount generally maxes out at 50 per cent for private cars. Some insurers offer discounts on top of your NCD. DirectAsia, for example, offers an additional 10 per cent discount if you've held on to your 50 per cent NCD for five consecutive years. With it, you will technically have 60 per cent NCD.

How do I earn NCD on my car insurance?

It's easy. Just have insurance coverage for a full policy term, and you'll earn a discount for the premiums in the following year. Simply put, if you have not made any claims against your own car insurance for a year, you will earn a 10 per cent discount each year. Keep it that way for the next five years, and you'll earn yourself a handsome 50 per cent NCD.

Of course, you'll need to be the owner of insurance policy at hand.

Will I lose my NCD in an accident?

One of the most common myths with car insurance is that if you're caught in an accident that isn't your fault, you'll lose your NCD when you make a claim. This is not true.

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Losing your NCD only applies when you make a claim in an accident when you're found to be at fault, according to the Barometer Of Liability Agreement (BOLA). Insurers follow BOLA to determine if you are at fault during an accident with other vehicles. A liability of 20 per cent or less means you can make a claim without affecting your NCD.

But even if you are found to be at fault, it doesn't mean you'll lose all of your NCD at once.

Generally, insurers will take 30 per cent off the NCD that you've earned upon making a claim.

So if you have 50 per cent NCD, you'll be left with 20 per cent NCD once you make a claim. Make a second claim within the same year, and your NCD drops to 0 per cent.

But it doesn't mean all claims against your insurance policy will result in a reset of your NCD. Making a claim on your windshield for example, will generally not affect your NCD.

Does private settlement after an accident affect my NCD?

If you do not make a claim against your insurance policy, your NCD will not be affected. Hence, many choose to privately settle accident claims out of their own pocket.

But you will still have to make an insurance report, despite not making a claim on your policy. Insurance companies may impose a reduction in NCD if you fail to make an accident report within the stipulated 24 hours.

So, don't get confused; you STILL have to make an insurance report even though you're planning to do private settlement to avoid losing your NCD. This is a common car insurance mistake to avoid when doing an accident insurance claim.

I don't want to lose my NCD. Is there any way?

Thankfully, its not all doom and gloom once you make a claim. Insurance companies offer different plans to prevent losing your NCD completely in an event of a claim.

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Called NCD protectors or optional covers, they generally allow the policyholder to make a claim without completely losing your NCD.

For example: you have earned 50 per cent NCD and you have an NCD protector. If you make a single insurance claim after an accident, your 50 per cent NCD will be untouched throughout the policy term.

Depending on the insurance company, some NCD protectors allow for a second claim during the policy term, keeping your NCD intact.

But the caveat is that the NCD protector is only recognised by the insurer that sold it to you. Going to another insurer may mean losing 30 per cent, or all of your NCD.

I'm changing cars. Does NCD apply to my car or me?

NCD only applies to the owner of the car insurance policy at hand, and not the vehicle.

That said, if you've earned yourself at least 10 per cent NCD, you can transfer it to your next car you insure. Upon the termination of your previous policy, whatever NCD you've earned will be valid for the next 12 months, after which, it will drop to 0 per cent.

Transferring your NCD to different insurers during renewal is also possible. Hence, it is always wise to make a comparison and find the best deal on your next renewal. sgCarMart offers an insurance comparison service for you to do just that.

Is my NCD transferrable to other people?

Generally, it is not possible to transfer your NCD to your friends or family.

But as a way to entice car owners, some insurers may offer you the possibility to transfer your NCD to your spouse or immediate family members.

But in most cases, you'll have to be insured by the same company, and such a transfer is subject to appeal.

This article was first published in sgCarMart.