Underinsurance in Malaysia — The Average Clause Explained

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Introduction

Underinsurance happens when your car insurance sum insured is lower than the car’s actual market value. In Malaysia, the average clause means the insurer will pay claims proportionately, so you have to cover the remaining balance yourself.

Understanding the average clause is the best defence. This guide breaks down how it works, with clear examples, and shows how to avoid the penalty.

How the Underinsurance Average Clause Works in Malaysia.

Underinsurance happens when your sum insured is lower than your car’s actual market value. In effect you only insure part of the car.

It often happens innocently — a driver lowers the value to cut premium, or renews at an old figure while the car’s value has changed.

How the Average Clause Works

The average clause enforces underinsurance penalties through proportional reduction.

The formula is payout = (sum insured ÷ actual market value) × loss.

Insure for 80% of true value and you receive roughly 80% of any claim — you cover the shortfall yourself.

A Worked Example

Say your car is worth RM50,000 but insured for RM40,000 — that is 80%.

You have an accident with RM10,000 of repairs. The insurer pays 80% × RM10,000 = RM8,000, and you pay the remaining RM2,000.

The clause applies even to partial claims, which is why underinsurance hurts so often.

How to Avoid the Penalty

Avoiding the average clause is simple: insure for full, fair market value.

Use a sum insured calculator for an accurate figure and review it at every renewal, because depreciation changes it each year.

Never trim your sum insured just to lower premium — the saving is tiny next to the claim reduction you risk.

Summary: How the Average Clause Affects Payout

Insured vs Value	Status	Effect on Claim
Insured at 100%	Full	Full claim payout
Insured at 80%	20% under-insured	Payout cut by 20%
Insured at 50%	50% under-insured	Payout cut by 50%

Frequently Asked Questions

How does this affect my car insurance renewal?

It directly shapes your cover and cost at renewal. Reviewing underinsurance average clause malaysia each year before you renew helps you avoid overpaying and keeps your protection accurate. A quick check on bjak.my makes it easy.

Does it affect my NCD?

Your No Claim Discount is earned through claim-free years. It is not lost overnight if your policy lapses — instead it steps down one level for each year without an active policy, and it only resets to 0% when you make an at-fault claim. Renewing on time keeps your full discount.

Where can I sort this out quickly?

On bjak.my you can compare quotes from 10+ insurers, set the right sum insured, and renew in minutes — all online, with free reminders so you never miss a renewal again.

Related Bjak Guides

For more context, read what affects your car insurance premium and why car insurance premiums keep changing, plus why claims can be approved but paid less. These guides help you check renewal steps, NCD, premiums, claims or add-ons before choosing the right policy.

How Bjak Helps

Bjak makes all of this easier. Bjak’s sum insured calculator pulls your vehicle’s up-to-date market value automatically, so you can set the right insured amount in seconds instead of guessing. Everything happens online, so you can sort your insurance in one sitting without paperwork or phone calls.

On bjak.my you compare quotes from 10+ insurers side by side in one place, so you see the best price and coverage without calling a single agent. Whether you’re renewing for the first time or switching insurers, bjak.my gives you the tools to do it confidently and at the best price.