February 22, 2016

Motor Insurance

Cover against third party risks in Malaysia was made compulsory under the Road Transport Act
1987. It is an offence for any person to use or cause or permit any other person to use a motor
vehicle without the necessary coverage.

This is an introductory guide to provide you with a better understanding of what motor insurance is and what you must know when buying motor insurance policies and making claims.

Types of motor policies
When you buy a motor vehicle, you need to buy a motor insurance. There are, however, many types of motor insurance policies available. The common types are:

• Comprehensive cover
– This policy provides the widest coverage, i.e. third party bodily injury and death, third party property loss or damage and loss or damage to your own vehicle due to accidental fire, theft or an accident.

• Third party, fire and theft cover
– This policy provides insurance against claims for third party bodily injury and death, third party property loss or damage, and loss or damage to your own vehicle due to accidental fire or theft.

• Third party cover
– This policy insures you against claims for bodily injuries or deaths caused to other persons (known as the third party), as well as loss or damage to third party property caused by your vehicle.

A standard motor insurance will not cover certain losses, such as your own death or bodily injury due to a motor accident, your liability against claims from passengers in your vehicle (except for passengers of hired vehicles such as taxis and buses) and loss or damage arising from an act of nature, such as flood, storm and landslide. However, you may pay additional premiums to extend your policy to cover flood, landslide, landslip as well as cover your passengers. It is important to check your policy for the exclusions.

Insured value/sum insured
If you are buying a policy against loss/damage to your vehicle, you must ensure that your vehicle is adequately insured as it will affect the amount you can claim in the event of loss/damage. For a new vehicle, the insured value will be the purchase price while for other vehicles, the insured value is the market value of the vehicle at the point you apply for the insurance policy.

• Under-insurance
– If you insure your vehicle at a lower sum than its market value, you will be deemed as self-insured for the difference, i.e. in the event of loss/damage, you will only be partially compensated (up to the proportion of insurance) by your insurance company.

• Over-insurance
– Should you insure your vehicle at a higher sum than its market value, the maximum compensation you will receive is the market value of the vehicle as the policy owner cannot ‘profit’ from a motor insurance claim.

Duty of disclosure
You should disclose fully all material facts, including previous accidents (if any), modification to engines, etc. When in doubt as to whether a fact is relevant or not, it is best to ask your insurance company. If you fail to disclose any material fact, your insurance company may refuse to pay your claim or any claim made by a third party against you. In such cases, you are personally liable for such claims.

The price you pay for your motor insurance will depend on the type of policy selected. The insurance premium charged by your insurance company is the standard minimum rate in accordance with the Motor Tariff.

However, in addition to the standard minimum rate, your insurance company may impose additional premiums known as loadings to the premium payable in view of higher risk factors involved such as age of vehicle and claims experience. Loadings are governed by Bank Negara Malaysia (BNM) and no insurance company may charge loadings higher than the levels permitted by BNM.

The premium payable may be reduced if you have no-claim-discount (NCD) entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy during the preceding 12 months of policy. Different NCD rates are applicable for different classes of vehicles. For a private car, the scale of NCD ranges from 25% to 55% as provided in the policy.

Also known as a ‘deductible’. This is the amount of loss you have to bear before your insurance company will pay for the balance of your vehicle damage claim. The types of excess applicable are as follows:

Compulsory excess of RM400
– if your vehicle is driven by a person not named in your policy or a person named in your policy who is under the age of 21, the holder of a provisional (L) driving licence or the holder of a full driving licence of less than two years.