Most insurance companies offer no claim bonuses - especially on insurance of cars and household contents. What does this mean?

Put simply, for each year you do not submit a claim under the particular insurance policy, who will get a discount on your insurance premium. The discount will tend to increase the more years you do not claim.

Why no claim bonuses

Why? By not claiming on your insurance policy you have saved the insurance company both administrative time and the money it would have had to pay out in the event of your making a claim.

Sometimes it may pay you not to claim, even if something has been stolen, because your loss of the no claim bonus advantage could cost you more than the money you would receive from the claim payout.

For example, a woman's ring or other jewelery may have been stolen, but it may pay her to bear the loss herself rather than losing the benefits offered by the no claim bonus or cash back, see below).   

Effectively then, the no claim bonus is both a reward for not claiming, and a discouragement from claiming.

Money back insurance

The no claim bonus is the forerunner of the relatively recent money back insurance policies. In this case you also get rewarded for not claiming and 'punished' for claiming in that the less you claim the more money you are likely to get back.

In a sense, though, the money back insurance is a better marketing tool - because many people are more likely to be attracted by the prospect getting cash back than by the prospect of a discount on future premiums, even if the latter might be more valuable.