It is known that you need to pay in order to purchase insurance. However, are you known for a term called “premium”?
If you review your policy plan, you will most likely find this term used repeatedly. In insurance, we are using this term when referring to buying insurance.
If you are new to insurance purchases, don’t worry. There’s always room to improve and learn everything! In this article, we guide you through the details.
What is “premium”?
Broadly speaking, a premium is the amount of money an insurance company charges you for the insurance policy you choose to purchase. In return, they will provide you with coverage in the event of a car accident or theft as laid out in the policy.
You are subject to pay the premium following the period set by the company. Most insurance companies let you choose between paying your car insurance premium every six months, or annually. However, you may check with your preferred insurer.
You will usually find a gross premium and basic base in your insurance policy.
- Gross premium – The total premium paid by the policy owner before deducting brokerage fees and discounts
- Basic premium – The portion of the standard premium for agent commissions and administrative costs.
How do premiums work?
In brief, insurance premiums usually have a base calculation. The cost of your insurance premium will vary depending on the type of coverage you are looking for, as well as the risk.
This is why it is always a good idea to shop for insurance or work with an insurance professional who can shop premiums with several insurance companies for you.
When people shop around for insurance, they may find different premiums charged for the cost of their insurance with different insurance companies, and they may save a lot of money on insurance premiums just by finding a company that is more interested in “writing the risk.”
Who decides the insurance premium?
Every insurance company has people who work in various areas of risk assessment.
For instance, they will determine based on i) the likelihood of risks and perils and ii) the costs associated with the event of a disaster or claim.
What factors determine an insurance premium?
To your knowledge, the Bank Negara Malaysia, on July 1, 2017, implemented a new rate or tariff effective to determine car insurance premiums. Individual insurers and Takaful operators are allowed to determine the premium rates based on several factors, as mentioned above. The liberalisation for the premium rates applies to Motor Comprehensive and Motor Third Party, Fire and Theft products.
The rate of your premium amount depends on the agreement between you and the insurer. Each insurance company has different premium rates because of the many factors they consider when setting car insurance premium rates. Here are some details that your insurance company may consider when setting premium costs.
Type of car insurance
The type of car insurance that you choose also affects your car insurance premium.
The more coverage you get, or the more comprehensive coverage you choose, the higher your insurance premium may be.
Comprehensive insurance is more expensive than the most basic insurance which is third-party insurance. Meanwhile, third-party, fire and theft insurance is cheaper than comprehensive insurance but more expensive than third-party insurance.
Car location
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).
Occupation
If your occupation requires you to drive often too 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.
Frequently Asked Questions (FAQ) about premium
How can you lower your car insurance premium?
The followings are a few tricks to get cheaper car insurance:
- Avoid automatic car insurance renewal
- Renew car insurance early
- Review car insurance coverage
- Compare car insurance policies
What happens if you don’t pay your insurance premium?
These are the consequences of not paying the premium:
- Unable to renew roadtax
- Subject to summons
- Cost you more risks and financial burdens
Bjak is one of Malaysia’s biggest insurance comparison websites, offering policies from over 10 brands. Get your free insurance quote from Bjak today!
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