Understanding vehicle insurance is crucial for every driver and this comes with familiarising oneself with the terms widely used in policies. From comprehensive and collision coverage to uninsured motorist protection, knowing the essential vehicle insurance terms can help you make informed decisions. Here are 7 important words you should know, so you’ll never have trouble understanding your policy again.
Deductible
A deductible in car insurance is the amount you must pay on your own for repairs after an accident. It’s a predetermined amount that you agree to pay before your insurance company starts providing compensation for losses.
Let’s say you have a car insurance policy with an RM500 deductible, and you get into an accident that causes RM3,000 worth of damage to your car. In this case, you are responsible for paying the first RM500; your insurance company will cover the remaining RM2,500.
Betterment
Betterment charges, also known as “betterment fees” or “depreciation charges,” are terms commonly associated with auto insurance claims.
Betterment charges refer to the situation where an insurance company may require a policyholder to pay a portion of the cost of replacing a damaged part with a new one, even if the original damaged part was used or old. This is due to the concept of betterment or improvement – the idea that a replaced part is now “better” than the old one.
The betterment charges are usually charged for vehicles older than 5 years. The minimum rate starts at 15%, while the maximum is 40%.
NCD
No-Claim Discount (NCD) is a discount given for vehicle insurance premiums by insurance companies. The waiver is set by Persatuan Insurans Am Malaysia (PIAM) to encourage safe driving. It acts as a reward/incentive for vehicle owners with good driving behaviour. NCD is also referred to as No-Claim Bonus (NCB) by some people.
The NCD rates for new vehicles start at zero in the first year of purchase and gradually accumulate over time. If no claims are submitted or made against the policy, private car owners can enjoy a maximum discount of 55% (from the sixth year onwards), while motorcycle owners get a maximum discount of 25% (from the 4th year onwards).
Compulsory Excess
A compulsory excess is a fixed amount (usually RM400) that insurers set for young, high-risk drivers, mostly those under 21 with a probationary (P) or learner’s (L) licence. A compulsory excess may also be required in situations where the vehicle damage was caused by unnamed drivers.
For example, if your children or siblings under the age of 21 run into an accident while driving your car, you will be required to pay a compulsory excess of RM400 while your insurer covers the remaining.
Voluntary Excess
Voluntary excess is an amount that the policyholder is willing to pay when claiming their insurance company. It works differently from compulsory excess despite sharing a similar condition.
Like compulsory excess, voluntary excess is also applied to vehicle owners under 21. However, it occurs under two additional conditions: the vehicle in question is at higher risk of theft, and the policyholder owns an expensive car. Unlike compulsory excess, voluntary excess is usually a certain percentage of the sum insured and not a fixed amount.
TPFT
TPFT, also known as third-party, fire and theft, is a type of motor insurance policy. It is a ‘semi-complete’ coverage that covers liabilities to third parties, vehicle theft and loss or damages resulting from fire. Unlike comprehensive insurance, TPFT policies do not cover vehicle impairment due to self-inflicted accidents.
So, the policyholder must self-borne repair costs for damages caused by an accident. This policy is often confused with a third-party policy which only covers liabilities to third parties.
Special perils
Special perils refer to specific risks or hazards that are not typically covered under standard auto insurance policies. These encompass a wide range of events such as earthquakes, floods, riots, vandalism, and other uncommon or extraordinary occurrences. It is also known as natural disaster coverage by someone.
Special perils in vehicle insurance exist in two forms. One is called full special perils cover, and the other is limited special perils cover. Full and limited coverages are primarily different in the amount of coverage and compensation offered to policyholders in the event of unforeseen damage due to convulsions of nature.
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