Car Insurance: The Hidden Risks of Under-Insurance

Is it worth insuring your vehicle below the market price? What is the risk if you under-insured your car?

Find out through this article.

Car Insurance

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The feeling that you get after you get your car insurance renewed is such a relief knowing that you are covered while on the road.

However, it is important to ensure that your coverage is sufficient. Please note that you are putting your vehicle in risky circumstances if it is underinsured.

What is under-insurance?

Ali owns a Brand A car where the market value (at the moment) is equivalent to RM40,000. However, during insurance renewal, Ali just insured his car at RM27,000. The amount is below the market value because the premium is lower.

The explanation above depicts what under-insurance is. In brief, under-insurance is a situation where the insurance coverage value is less than the actual market value to protect the insured property, such as a car

The compensation value will not only be less than the car’s current market value in the event of an accident, theft, or fire but also lower than the amount you have insured when renewing the insurance.

Calculation formula:

The calculation for car accident

Let’s refer to Ali’s case from above. The current market value of Ali’s car is RM40,000 during the insurance renewal.

Fast forward to 10 months later, it was unfortunate that Ali was involved in an accident. At this time, his car market value has decreased to RM36,000. He needs compensation of RM5,000 to repair his damaged car.

The following is the amount of compensation that Ali can get from his insurer:

The insurer will only pay to compensate Ali as much as RM3,750. Meanwhile, the remaining amount of RM1,250 falls into Ali’s responsibility to pay using his money.

What is the risk of under-insurance?

You will not receive total compensation from your insurer in the event of an accident. You may need to foot the bill to repair your car damage (car accident).

Other than that, you are also unable to get total compensation (car theft or total loss).

This can be disadvantageous unless you insure your vehicle according to the agreed value when renewing the insurance.

Avoid under-insurance, purchase adequate coverage for your vehicle

Please make sure to cover your vehicle adequately with the right insurance policy.

If you have doubts or little knowledge, please seek advice from the customer service team of your preferred company to assist. They can suggest and explain if you renew the insurance according to the market value, agreed value, or less than the market price.


Bjak is one of Malaysia’s largest car insurance comparison sites. Get free quotes at Bjak and renew car insurance and road tax online in just 5 minutes.

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