Car Insurance 101 – Brought to you by Tune Protect

Most of us need automobiles to get from one place to another. However, as useful as vehicles are, we cannot deny the fact that operating a vehicle carries a certain amount of risk with it. Every driver out there faces the risk of being involved in a crash.

Even if you drive safe and obey traffic laws, someone else can cause of an accident that involves you. Besides that, we are all human beings and we make mistakes. That being said it is very important to have your vehicles protected at all times. In fact, the Malaysian law requires all vehicles to have insurance coverage even before the road tax can be purchased or renewed. It is a mandatory requirement that all cars are insured, at least with the basic third party coverage.

What is a vehicle insurance policy?

A vehicle insurance policy is something that protects your finances from the unexpected expenses in the event of an accident, as you will never know when an unavoidable accident could happen.

In the unfortunate event of an accident, you can also be held responsible for the real property damage that you might cause to any third party.

For example, if you rammed into a house and caused a wall to collapse, you could be liable for the house’s repair costs. Believe it or not; a single accident can all but force you into financial difficulties if you are not protected by insurance.

So, in simpler words, insurance exists to protect you from that scenario, by saving you the out of pocket expense of fixing the damages caused.

Also, what if your car gets stolen? This is again, where insurance kicks in to cover the expenses and put you back to the same financial position as you were in immediately before the loss.

There are three types of insurance policies (cover) as mentioned in the table below:

Every vehicle on the road must at least, have a third party cover. But to be sufficiently covered, a comprehensive cover is recommended (most popular) as it covers loss/damage to own vehicle due to an accident.

What are you paying for?

Like most things in life, a vehicle’s insurance comes at a cost. In this case, the premium for your car insurance depends on the type of policy selected, in accordance to the minimum rate for motor tariff. 

On top of the standard minimum rate, your insurance company may impose additional premiums known as loading, to the premium payable due to higher risk factors involved such as age of vehicle and claims experience.

Loadings are governed by Bank Negara Malaysia (BNM) and no insurance company may charge loadings higher than the levels permitted by BNM.

If you are worried about the premium, do note that there is an element of no claim discount (NCD) where premium is reduced according to a specified percentage if no claim is made against the policy during the preceding 12 months.

This reduces the insurance premium payable for subsequent renewal. For example, the cycle starts from 0% when you first purchase an insurance policy, and if no claims made in the first year, the renewal premium will be decreased by 25%.

However, if there is a claim during the period of cover, NCD will be forfeited and reverted to 0%, which will require owners to begin accumulating the discount in a new cycle.

No Claim Discount (NCD) rates:

Other than NCD element, other factors can also determine the insurance premium rate, such as:   

Market value of vehicle

This is the total value which you insure your vehicle for. To ensure that your car is sufficiently insured at the market value of your car, do not undervalue your car (yes, you may pay cheaper premium), as insurance companies will compensate up to the amount insured, and will require you need to bear the balance of cost.

However, if you overvalue your car (here, you pay higher premium), insurance company will only compensate up to the market value.

Engine Capacity

• The bigger the capacity of your vehicle’s engine, the higher the premium.

Location

• Premium rates vary between vehicles that are located in East and West Malaysia.

Loading

• Insurance companies may impose loading due to higher risk, depending on the age of a vehicle and the claims experience

Additional Coverage

Vehicle owners may also include additional coverage their vehicles such as windscreen cover, car accessories cover and loss/damage arising from acts of nature such as flood, storms and landslides. Though this comes at a price, the additional cover is highly recommended, especially if you in an area where flash floods are common.  

What else do you need to be covered for?

Though a comprehensive car insurance policy provides extensive coverage, it does not cover the driver or the passengers’ death or bodily injuries suffered while traveling in your vehicle. This means that there will not be any hospitalization allowance or coverage for funeral expenses. So, it is recommended that you include additional coverage for personal accident, so that you and your passengers are well protected. 

That said, it is important for you to get your car and yourself sufficiently insured.

Now that we have covered the basics of what an insurance policy is, the next series will focusing on what you should do in the event of an accident. Till then, be safe and be protected.

This series on Car Insurance 101 is brought to you by Tune Protect.