What is a 'no-claims bonus'?

A 'no-claims bonus' refers to a discount on premiums provided by insurance companies to policyholders who have not made any claims during a specific period, typically the preceding year. This concept is designed to incentivize safe driving and responsible vehicle ownership. By rewarding individuals who maintain a claims-free record, insurers encourage better risk management among their clients, which can lead to lower overall costs for the insurance provider.

As a policyholder accumulates years without making a claim, the no-claims bonus increases, which can significantly reduce the annual premium cost. This mechanism helps to align the interests of the insurer and the insured, promoting safer driving behaviors and potentially reducing the frequency of accidents.

Other choices like a fee for making a claim or a penalty for late payments do not represent the essence of the no-claims bonus, as they focus on penalizing behavior rather than rewarding safe practices. A reward for good driving habits is related but does not specifically capture the contractual bonus linked to claim history and premium discounts.