Before you purchase car insurance, it is best that you understand the key terms and clauses of a car insurance policy. This is to help you choose the best policy and ease you when you need to make an insurance claim later on.
These are some key car insurance terms and clauses that you should know.
Types of car insurance policies
There are 3 types of car insurance policies available in Malaysia which are (1) Comprehensive insurance, (2) Third party, fire and theft insurance and (3) Third party insurance.
Comprehensive insurance
This type of policy offers the most comprehensive coverage. It gives protection to policyholders from any loss or damage of their property and third party’s claims, which include the loss or damage to the third party’s property, injury or death caused by you.
Third party, fire and theft insurance
This policy protects policyholders from third party’s claims that include loss or damage to the third party’s property, injury or death caused by you.
It also offers additional coverage that will protect your vehicle in the event of fire and theft.
Third party insurance
Third party insurance is the most basic policy as it only gives coverage to the third party. It includes damage or loss to the third party’s property and life as a result of a car accident caused by you.
Say that you run into an accident that damages your car and you are at fault, you will need to bear the repair cost of your car.
Read our past article on the different types of car insurance policies for more information.
What is covered
Firstly, understand that your insurance only covers certain events that can happen to your car. Therefore, “what is covered” refers to the events that your insurance will cover and compensate. It is important that you know what your insurance covers to avoid any confusion during your claims process.
For instance, if you purchase comprehensive insurance, you need to understand the events covered by your insurance. Other than the main coverage, you should also be aware of the complementary benefits that come with your policy. For example, Takaful Malaysia offers free personal accident coverage of RM15,000 each for the driver and passengers in the event of death or total permanent disability due to a car accident.
What is not covered
As we have pointed out, your insurance does not cover everything that can happen to your car. The events that your insurance does not cover are also referred to as “exclusions.” This means that if any of the events that your insurance does not cover were to happen to your car, you cannot make a claim against your insurer.
For instance, your insurance does not provide coverage if your car is damaged by floods. However, if you would like your insurer to cover the damage, you will have to purchase special perils cover as an optional cover. To enjoy this coverage, you will have to pay an additional premium that varies across insurers.
Another event that your insurance does not cover is if your car is damaged due to any strike, riot or civil commotion. However, you can enjoy this coverage if you purchase a Strike, Riot and Civil Commotion cover as an add-on cover.
Period of cover
Period of cover refers to the effective date of your insurance policy. During this period of cover, you can make claims on your insurance policy for the events that your insurance covers.
The usual period of cover is one year. It is mandatory for you to renew your car insurance annually to enjoy your insurance coverage.
Sum insured
Sum insured is the maximum amount for which your vehicle is insured. According to the General Insurance Association of Malaysia (PIAM), the basis of assessing the true worth of a vehicle is its market value at the time of a loss. For instance, if the sum insured of your car according to your car market value at the time of renewal is RM45,000, you may actually get a lower compensation if your car market value depreciates at the time of car loss.
However, you may also choose an agreed value as the sum insured for your car. If you choose an agreed value, the compensation you will get in the event that your car is a total loss will be the agreed value at the time of your insurance renewal. The amount remains even though your car market value depreciates.
You can check your vehicle market value for free at MyCarInfo and read further about car market value and agreed value in our past article.
Excess
Excess is the first amount that you have to pay for each and every insurance claim, even if the incident is not your fault.
However, the excess does not apply to loss or damage due to fire, explosion, lightning, burglary, housebreaking, theft, third party property damage or bodily injury claims. You have to check your policy schedule to find out the amount of excess that you are liable to pay.
Learn more about motor insurance excess in our past article.
No Claim Discount (NCD)
If you have insured your car for a continuous period of 12 months and you or anyone else who drives your car does not make any claim under your policy during the period of cover, you will enjoy a No Claim Discount (NCD) for every insurance renewal.
For your information, your NCD rate will increase every year up to a maximum of 55% for private cars. However, if you make an insurance claim where you are at fault, you will lose all of your NCD.
Besides, as NCD is your personal right, you can actually transfer your NCD from your old car to your new car.
Optional cover
Optional or additional cover refers to additional cover that is not provided by your insurer in your standard insurance policy. If you wish to purchase additional cover, you will have to pay an additional premium.
For instance, if you wish to purchase a windscreen cover, you will have to pay 15% of the amount insured for your windscreen. For instance, if the amount insured for your windscreen is RM1,000, then the additional premium you have to pay is only RM150. With this optional coverage, if your windscreen chips or breaks, your insurance will pay for the repair or replacement cost of your windscreen.
Some of the optional coverages that you can get are as follows:
- Windscreen coverage
- Special perils (natural disasters) coverage
- Additional driver coverage
- All drivers coverage
- Car accessories coverage
- Coverage for riots
- Legal Liability to Passengers
- Legal Liability of Passengers
- Compensation for assessed repair time (CART)
- Waiver of betterment cost
- Personal accident coverage
- E-hailing insurance coverage
- Unlimited towing service coverage
You may purchase any of the additional coverages according to your needs and risk assessment.
Named driver
A named driver refers to the individual that you name as an additional driver in your insurance policy. Aside from protecting you, your insurance also protects the driver named in your insurance policy.
For your information, you will have to pay a compulsory excess of RM400 if the person driving your car at the time of your car accident is not a named driver in your insurance policy. Hence, if you let anyone drive your car, it is best that you name them in your insurance policy.
Adding the first two named drivers (including yourself) is free of charge. If you wish to add a third driver or more, you can do so by paying RM10 for every additional named driver.
To extend your insurance coverage to anyone that you authorise to drive your car, you can get all drivers coverage which will only cost you RM20. For this coverage, you do not have to name anyone in your policy as anyone authorised to drive your car will get the protection automatically. Some insurers like Takaful Malaysia, Takaful Ikhlas and Lonpac offer all drivers coverage for free.
Basic premium, gross premium and final premium
Basic premium: Your insurance amount before the NCD.
Gross premium: Your insurance amount after the NCD.
Final premium: The final amount you have to pay to your insurer to activate your insurance policy. The calculation of the final premium is as follows:
Final premium = Gross premium (after NCD, if any) + Additional coverage (if any) + Service tax (6%) + Stamp duty (RM10)
Refer to our illustration below to understand how your insurance premium is calculated.
Endorsement
An insurance endorsement is a change or addition to an insurance policy that alters the terms or scope of the original policy. Adding an endorsement to your existing insurance policy usually means adding or modifying coverage.
For your reference, below is an example of an endorsement form by Takaful Ikhlas.
Understand your car insurance policy to secure sufficient coverage
We hope that our sharing can help you better understand your car insurance policy. As you are aware, it is important that you understand the terms and clauses in your insurance policy so you know what your insurance covers and does not cover. You may then decide whether you need to get any optional coverage based on your risk assessment.
You should also compare across insurers as insurers may offer different coverages and premiums. To secure car insurance that meets both your budget and needs, use Bjak to compare up to 15 insurance quotations for free. Visit Bjak.my today to get your free car insurance quotes online.
