How Is Car Insurance Premium Calculated?

Learn about the factors that affect your car insurance premium, and how your car insurance premium is calculated.

Car Insurance

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Effective July 1, 2017, premium rates for Motor Comprehensive and Motor Third Party, Fire and Theft products have been liberalised. Following the motor tariff liberalisation by Bank Negara Malaysia (BNM), premium rates are determined by individual insurers and takaful operators. This liberalisation causes car insurance premiums to vary, giving more options to consumers. For your awareness, we share in this article the factors that affect car insurance premiums and how to calculate car insurance premiums.

Factors that affect car insurance premiums

Car market value

One of the factors that affect car insurance premiums is car market value. Typically, cars with a higher market value will have a higher sum insured and therefore a higher premium. For instance, a brand new BMW 2 Series Gran Coupe with a market value of RM199,177 will have a higher insurance premium than a brand new Honda Jazz with a market value of RM75,300. 

Nevertheless, note that car market value depreciates every year. This will thus lower your insurance premium as your car market value depreciates. You can check your vehicle market value for free at MyCarInfo.

Car’s manufacture year

Car’s manufacture year also affects car insurance premiums. For example, a Proton Saga manufactured in 2016 will have a lower insurance premium compared to a Proton Saga manufactured in 2021. In other words, insurance premiums for older cars tend to be lower than insurance premiums for newer cars.

No Claim Discount (NCD) 

Your No Claim Discount (NCD) also affects your car insurance premium. NCD is a ‘reward’ scheme that you earn if you do not make any claim on your insurance policy on an annual basis.

The NCD rates vary according to different classes of vehicles. For private cars, the NCD rates range from 25% to a maximum of 55%. The higher your NCD rate gets, the lower your car insurance premium becomes. Refer to our visual below for the NCD rates for private cars in Malaysia.

NCD rates for private cars in Malaysia

Type of car insurance

The type of car insurance that you choose also affects your car insurance premium. Comprehensive insurance is more expensive than the most basic insurance that is third party insurance. Meanwhile, third party, fire and theft insurance is cheaper than comprehensive insurance but more expensive than third party insurance.

For your information, it is compulsory for cars aged 10 years old and below to have comprehensive insurance. For cars older than 15 years old, it is encouraged for the cars to have third party, fire and theft insurance.

Types of car insurance in Malaysia

Car location

Typically, insurance premiums for cars in city areas are higher in comparison to the premiums for cars outside of city areas.

Other than that, car insurance premiums are also higher for cars in West or Peninsular Malaysia than cars in East Malaysia (Sabah and Sarawak).

Driving record

If you are a good driver and have a squeaky clean driving record, your car insurance premium will likely be lower. In contrast, if you often violate traffic rules and run into road accidents, your insurance premium will likely be higher as your insurer will consider you a high-risk driver.

Maintain a good driving record to enjoy a lower car insurance premium


If your occupation requires you to drive often to high-risk areas such as construction sites, your car insurance premium may be higher. This is because your car usage due to your occupation exposes your car to a higher risk of accidents and damages.

How to calculate car insurance premiums

The basic formula to calculate car insurance premiums is as follows:

Car insurance premium = Premium (after NCD, if any) + Additional coverage (if any) + Service tax (6%) + Stamp duty (RM10)

How to calculate car insurance premiums
How to calculate car insurance premiums

Compare before you buy car insurance

In conclusion, a few factors affect car insurance premiums. The factors include your car market value, type of car insurance and your No Claim Discount (NCD). As your insurance premiums are also based on the risk assessment by insurers, it is crucial that you compare the coverages and premiums offered by different insurers.

To help you easily compare insurers and their offerings, we recommend that you use Bjak, one of the biggest insurance comparison sites in Malaysia. At Bjak, you can get up to 15 car insurance quotes for free. You can renew your insurance online and have it activated in just 5 minutes.