Types of Vehicle Insurance and Interest Calculations

malaysia windscreen

Owning a car does not only mean having your name as the owner of the vehicle. You need to know about road tax and insurance as well. So before you buy any vehicle, whether it is new or used, take note of the 3 main types of vehicle insurance in Malaysia because it is compulsory to have this before you can get a road tax for your vehicle to be ‘legal’ in the country.
The 3 types of insurance policies used for vehicles are First Party, Third Party and All Rider’s policies respectively. All Riders’ Policy is mainly used for motorcycles while First and Third Party ones are used for most vehicles. The policies are applicable for the whole of Malaysia while it usually covers Singapore and Thailand.

First Party Policy- Sometimes referred to as a Comprehensive Policy which covers loss of the vehicle duet to theft. In this situation, the insurance will usually not cover a full 100% of the price of the vehicle. Instead, it will be about 80 to 85% depending on the valuation.

Besides that, this policy will cover damages to one’s vehicle and damage to the party which was involved in the accident of the owner’s vehicle. Damages to the windscreen in the front and the rear and other glass panels are covered as well. The insurance policy will cover injuries suffered by pedestrians, cyclists and motorcyclists or other parties in the accident.

Third Party Policy- this policy is more popularly used for old vehicles like the first and second generation Hondas or Protons. In most cases, it does not cover loss or theft of the vehicle which is why this policy is usually cheaper. However, it can cover the damages and injuries as mentioned in First Party Policy.

Another aspect which must be known is that a Third Party Policy can be converted into a First Party policy with a higher premium.

What you should know about buying insurance for your car

If you are a car owner, it is mandatory for you to buy motor insurance for your vehicle every year. Without that, you will not be allowed to renew your road tax which means your vehicle will not be allowed on the public roads. With every passing year, your car insurance changes and it can sometimes be confusing.

Clearing your doubts

What you need to know about your car insurance is the sum assured which will directly determine how much premium you have to pay. Basically, what it means is that the more expensive your car is, the more you have to pay each year. This is despite the fact that car prices depreciate annually. So, how is this calculated? We break it down for you below.

Factors in motor insurance

First and foremost, you need to understand several things in order to know how your motor insurance is calculated. Generally, all motor insurance providers have the same calculation and terms. Among the popular ones providing this service include Kurnia, Zurich, Lonpac, Pacific, Berjaya Sompo, Maybank and others.

  • Market Value – There is no argument that car prices depreciate each year. You need to know how much your car is valued at that current year. This can be done through a simple check with the insurance provider or you can easily search for it online.
  • NCD – Short for No-Claim Discount, this refers to the discount you enjoy if you do not claim any insurance and it increases every year. The NCD is pretty much standard as it is set by regulation.
    • Year 1 – 25%
    • Year 2 – 30%
    • Year 3 – 38.33%
    • Year 4 – 40%
    • Year 5 and above – 55%
  • Insurance Type – There are 3 types of motor insurance offered which are:
    • Third-party standalone
    • Third-party fire and theft
    • Comprehensive
  • One thing to note: Motor insurance is higher in West Malaysia as compared to East Malaysia because of market value and higher risks.
  • CC and Year Manufactured – Both these factors are taken into consideration when calculating your premium. It is very crucial to know the exact CC of the vehicle here.

The table used to calculate the Comprehensive coverage for West Malaysia is as below. The left refers to the CC while the right is the Premium payable. The amount is for the first RM1,000 sum insured.

  • Less than 1400cc – RM273.80
  • 1401 to 1650cc – RM305.50
  • 1651 to 2200cc – RM339.10
  • 2201 to 3050cc – RM372.60
  • 3051 to 4100cc – RM404.30
  • 4101 to 4250cc – RM436.00
  • 4251 to 4400cc – RM469.60
  • 4401cc and above – RM501.30

The formula is:

The Comprehensive rate for the first RM1,000 of sum assured + RM25 for every RM1000 or any part above the first RM1,000 as per the table above.

Using an example of a car with a value of RM60,000 with a cubic capacity of 1469, it would be:

  • Fall under the second bracket (1401 to 1650cc).
  • a. First 1000 = RM305.50
  • b. RM25x49(000) = RM1274.00
  • Total of a and b = RM1579.50
  • NCD = 30% (assuming the buyer has an NCD for the second year).
  • RM1579.50 – 30% = RM1105.65
  • RM1105.65 is the Gross Premium for this car. However, to know the final payable amount, the following needs to be added including RM10.00 stamp duty and SST.

Is that all?

All those explained above are the basic payments applicable and only cover damages in an event of accident, theft or fire. There are other situations that it does not cover. Hence, you can add in more items in your car insurance to be covered each year. This includes your Windshield and Audio System which will amount to 15% of the total sum insured. Take note that windshield coverage is very common as they are highly risky.  The comprehensive coverage policy covers the first 2 drivers and if you would like to add more drivers, it would be an additional RM10.00 per driver. Other types of add-ons include:

  • Strike, Riot & Civil Commotion or SRCC – This will be 0.3% of the total sum insured.
  • Special Perils including Flood, Landslide, Storm will be 0.5% of the sum insured.
  • Legal liability for Passenger Act of Negligence – RM7.50 per vehicle.

What about Third-party insurance?

The main difference between third-party and comprehensive coverage is basically on damages. Third-party coverage is the cheaper alternative and is mostly used to cover used cars or vehicles. If you are driving an old car (10 years and above), it would make sense to buy third-party insurance. In an event of an accident, this policy will cover the damages for the other person and vehicle. It DOES NOT cover any damages on your side. In other words, you will have to pay for your own repairs. As for Third-party fire and theft, it covers both the other person and your car if it caught fire or got stolen.

Once you have calculated the total premium for comprehensive coverage, then you can calculate the Third-party coverage. Basically, the third-party insurance premium is based on the formula:

75% of the Comprehensive Coverage premium – NCD. That will then be added on with the SST and Stamp Duty.