Introduction
The risks of being under-insured are often underestimated, but the impact can be substantial during an accident. When your insurance coverage is lower than the current value of your car, the insurer will only pay a portion of the repair costs. As a result, the car owner has to cover the difference — sometimes thousands of ringgit.
Understanding under-insurance helps car owners make smarter decisions during policy renewal, evaluate the right coverage, and ensure adequate protection.
1. What is the Risk of Being Under-Insured?
- The risk happens when your insurance coverage is lower than your vehicle’s actual value. In this situation, any accident claim is paid pro-rata, meaning the insurer only covers a portion of the total damage.
For example:
- Actual car value: RM50,000
- Insured value: RM40,000
- Repair cost: RM20,000
Pro-rata formula:
Damage Cost × (Insured Value ÷ Actual Value)
So the payout becomes:
RM20,000 × (RM40,000 ÷ RM50,000) = RM16,000The owner must then pay the remaining RM4,000 out of pocket.
2. Factors That Increase Under-Insurance Risk
- Car market value rises but the policy is not updated
- Added accessories not reported to the insurer
- Owner chooses a low coverage value to save on premiums
- Major repairs or upgrades not declared
Each factor increases the likelihood of financial loss during a claim.
3. Impact of Being Under-Insured
- Reduced compensation (pro-rata)
- Car owner bears high repair costs
- In total loss situations, insurer pays less than the car’s market value
- Can lead to serious financial loss, especially for new or expensive cars
4. How to Reduce the Risk
- Check your car’s current value before renewing your policy
- Update any accessories, upgrades, or major repairs
- Choose adequate coverage; don’t go too low just to save on premiums
- Use licensed platforms like BJAK to compare policies and get accurate advice
Conclusion
Risks of being under-insured can lead to significant financial loss if car owners don’t check coverage values and update policies. By understanding contributing factors and taking preventive steps, you can reduce risk and ensure insurance payouts are sufficient to cover actual damage.
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