Drivers who pay to protect their no claims discount are worse off on average - unless they claim in the first year
Drivers paying extra to protect their no claims discount are worse off than non-protected motorists if they do not make a claim in the first year, according to research by comparison website Moneysupermarket.com.
Motorists pay an average of £23 extra on top of their annual car insurance for no claims discount protection.
But according to data from the price comparison firm, the longer the protection is in place the less cost-effective it becomes.
Moneysupermarket said drivers with a five year no claims discount, who had paid to protect that discount, would be £21 better off on average if they claimed in the first year of the protection versus a motorist who made a claim on a unprotected policy.
However, in the second year motorists would be £2 worse off and in the third year, motorists protecting their no claims discount would be almost £25 worse off, although there are wide discrepancies between insurers.
That is despite the fact that premiums can jump by a third on average if a driver with a no claims discount makes a claim.
More... Dacia to launch Britain's cheapest estate car at under £7k How to get the cheapest car insurance: Ten tips for cheaper car coverThe reason is that no claims discount protection does not mean a crash is ignored when premiums are calculated - only that the same percentage discount will apply as before. It is something that is commonly misinterpreted by drivers, Moneysupermarket said.
For example, a driver who can buy car insurance for £600 a year has five years of no claims discount that gives him 50 per cent off, taking the sum he pays down to £300. If he pays for no claims discount protection, another £25 is added to his bill to take it to £325.
If the driver were to crash, and claim on his insurance, his insurance premium might jump to £800 a year, but his protection means he still gets 50 per cent off, so he ends up paying £400 - less than if he had no protection but £75 more than the premium from the previous year.
Motor insurance premiums in standard motor insurance scenario (NCD= No claims discount)Peter Harrison, car insurance expert at Moneysupermarket, said: 'Having reached the "Holy Grail" of five years no claims discount, many motorists will be reluctant to run the risk of losing it and may consider paying extra to protect it.
'With premiums rising by almost a third if you make a claim, paying extra to protect your policy against this hike might be worthwhile but be warned, if you protect your policy and do not make a claim for a number of years, you could find that you are eroding any potential savings.
'It's crucial for motorists to understand the costs involved with premiums; additional fees for protecting a no claims discount entirely depends on your personal circumstances and motoring history, as well as the provider.'
There are benefits to protecting no claims discounts. The comparison website found drivers making a claim on their motor insurance policy with an 'unprotected' no claims discount could see the cost of their premiums rise by as much as 30 per cent.
The research showed motorists making a claim with five years unprotected no claims discount could see their premiums hiked from £322 to £417 compared to protected drivers who would only see a eight per cent increase from £345 to £373.
Peter Harrison said: 'Building up your no claims discount over a number of years can be a valuable commodity and can help reduce the cost of your premiums.
'If you are looking to protect your no claims discount, shop around for the best deal available for your circumstances and if you do find a better deal with another provider, you can take your no claims bonus with you.'
