Articles

Motor Insurance Jargons Buster Guide (2020)

by Chee Poi L. Writer

Purchasing a car can often be an easy choice. From numerous car manufacturers and models, you are spoilt for choice. However, a dilemma appears once you have bought a car as you would need to buy the right car insurance policy which suits your needs. With so many choices of car insurance policies and perplexing terminologies, selecting the right car insurance can be overwhelming. 

It is significant to familiarize yourself with the motor insurance jargons. This is to ensure that you have a proper understanding of the terminologies when signing an insurance policy. 

We have included some of the top motor insurance jargons to help you know exactly what your car dealer is offering you and the insurance policies to choose from. 

Check them out.

A

1. Act Premium 

Known as the minimum cover corresponding to the requirements of the Road Transport Act 1987. The cover required is in respect of the legal liability for death or bodily injury to the third party (excluding passengers). However, this policy is hardly underwritten by the insurers. 

2. Adjuster

Someone who investigates the claim to determine how much the insurance company should indemnify you for the damages/losses incurred. 

3. Authorised Driver

Refers to anyone who drives your car with your consent or permission provided to him/her who holds a valid driving license of the relevant type and is not disqualified to drive by lay or for any other reason.

B

4. Betterment

If your vehicle is more than five years old, then the principle of betterment can be applied. Betterment happens when in the course of repairing an accident-damaged vehicle, an old part is replaced with a new franchise part. Following the principle of indemnity, you will need to bear the difference in costs as you are in a better position after the accident with the new franchise part. If your insurance company applies betterment, then it would be accordance with the standard scale of betterment adopted by the industry as follow: 

Age of vehicles/YearsMaximum Rate (%)
Less than 5 years0
515
620
725
830
935
10 and above 40

C

5. Car Insurance

Car insurance is known as a policy contract which is signed between the policyholder and the insurance company. The main purpose of a car insurance is to protect the policyholder against financial losses caused by road accidents, fire or theft in exchange for annual premium payments.

6. Certificate of Insurance

Certificate which is a prescribed form that the insurance company is required to issue to the policyholder under the Road Transport Act 1987 and it outlines the particulars of any conditions subject to which the motor policy is issued. 

7. Claim

An insurance claim is a formal request by a policyholder to their insurer for coverage or compensation for a covered loss such as car damage or bodily injury.

8. Comprehensive Cover

Comprehensive car insurance covers you against unforeseen losses to the third party for death or bodily injuries, damages that have occured to the third party’s properties as well as accidental or fire damages and burglary cases that have occurred to your car. 

It provides additional coverage for the policyholders’ cars that are damaged due to the occurrence of an accident. This coverage is also known as the most diverse and widest coverage compared to the other coverages. 

The additional extensions that are included in this coverage are:

  • Windscreen Coverage
  • Named Driver
  • Special Perils, (Flood, Hurricane, Typhoons, Earthquakes, Landslides and other natural disasters)
  • Personal Accidents and Medical Benefits for Drivers and Passengers 
  • Legal liability 
    • -Legal Liability to Passengers (LLTP)
    • -Legal Liability of Passengers (LLOP)
  • Compensation for Assessed Repair Times
  • Car Accessories Coverage
  • Strike, Riot and Civil Commotion

9. Compulsory Excess of RM400

You would need to bear an additional excess of RM400 if you or the person driving your car:

  • Under 21 years old
  • Holds a Provisional (P) or Learner (L) driver’s license
  • Not named in the policy as a named driver

D

10. Deductible/Excess

Deductibles which are also known as excess is the amount of money that you would have to incur while the remaining amount would be borne by the insurance company. The higher the deductibles, the lower the premiums as you have taken more risk on yourself and the insurance company would pay less for your losses. 

To clarify, if you have RM1000 deductible and have encountered an accident where you are at fault which have caused RM2000 damage to your vehicle, then you would have to pay the first RM1000 out-of-pocket while your insurance company would bear the remaining losses of RM1000. 

11. Duty Disclosure 

Duty of disclosure comes into action when you would need to disclose fully all material facts such as previous accidents (if any) and modifications made to the engine. When in doubt as to whether a fact is relevant or not, the best way is to ask your insurer. If you have failed to disclose any material fact then your insurer may refuse to pay your claims or any claims made by a third party. In such cases, you are personally liable for such claims.

E

12. Exclusions

Standard motor insurance does 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 buses and taxis) or loss/damage due to an act of nature such as flood, landslide or storm. In order to include those extensions, you should pay additional premiums to extend your policy. Remember to always check your policy for the exclusions

H

13. Hire Purchase

Hire purchase is also referred to as car loans. It is your responsibility to insure and maintain your car while the bank remains as the legal owner. To clarify, you do not legally own the car until you have fully settled the loan amount agreed in your hire purchase agreement.

I

14. Insurance Endorsement/Rider

An amendment made to an existing insurance contract that changes the terms of the original policy. Also, known as rider and can be issued at the time of purchase, mid-term or during renewal. They can be used to add, delete, exclude or alter the coverage.

15. Insured

A person or organization covered by insurance. 

16. Insurer

A person or organization who insures someone or something and underwrites an insurance risk.

L

17. Legal Liability

You would be legally liable to pay for those damages if your insured car is involved in an accident in which the third party suffers the damages. Nearly every country requires you to have liability insurance for your car so that if you or any authorised driver driving your car causes an accident, the third party will receive appropriate compensation. 

M

18. Motor Detariffication

Starting from 1st July 2017, Bank Negara Malaysia (BNM) has announced that motor insurance will be detariffed. Therefore, insurance companies will be able to implement risk-based pricing and use their own method to calculate insurance premiums for car insurance based on the risk profile of a customer. Hence, the premiums will differ from one policyholder to another policyholder.  

N

19. No-Claim Discount

No-Claim Discount which is commonly known as NCD, is a significant part of your car insurance. NCD is known as a reward for safe driving. 

NCD is a type of discount given for:

a) not making any insurance claim for the preceding 12 months.

AND

b) not having any insurance claim made by a third party against your car insurance policy. 

No-Claim Discount plays a vital role in determining how much you have to pay for motor insurance as it offers a discount up to 55% of your base motor insurance or motor takaful coverage. The discount rate is determined and fixed by the General Insurance Association of Malaysia (also known as PIAM). Hence, the rate is the same across all insurers in Malaysia.

No-Claim Discount (NCD) Rate In Malaysia

Period of No Claims Made Private Car Commercial Vehicle Motorcycle 
First Year 0% 0% 0% 
Second Year 25% 15% 15% 
Third Year30%20% 20% 
Fourth Year 38.33%25%25% 
Fifth Year 45% 25% 25%
After Fifth Year 55% 25% 25%

O

20. Over-Insurance 

If you insure your vehicle at a higher sum insured than the market value of the vehicle then the policyholder could not profit from a motor insurance claim as you would end up paying higher premium for the policy. 

P

21. Perils

A specific risk or cause of loss covered by an insurance policy such as a fire, theft, windstorm or flood. 

22. PIAM

PIAM stands for Persatuan Insurans Am Malaysia is an organization responsible for safeguarding the country’s general insurance interest. 

23. Premium 

The cost of your insurance policy which is payable monthly, quarterly, semiannually or annually installments. 

24. Principle of Indemnity 

Based on this principle, the insurance cover will compensate your loss by putting you back to the same position you were in immediately before the loss. As you will be compensated only for the loss suffered, you cannot profit from a motor insurance claim.

R

25. Risk Profile 

Risk profile is an analysis used to determine whether a policyholder shows a high or low risk based on certain factors such as driving record, location and coverage history. Insurance companies are responsible for determining the risk profiles guided by their own identified risk factors. 

S

26. Sum Insured 

The amount you choose to insure your car is known as sum insured. To be safe, you should insure your car at its current market value. Thus, under this term the market value is considered to be equal to the agreed value of the sum insured. 

T

27. Third Party Cover 

Third party cover is known as the most commonly purchased coverage among these three coverages. This coverage insures the third party who is involved in any car accident. To clarify, if the policyholder is at fault in an accident, this policy would bear the cost of the third party’s car damages and bodily injuries.

28. Third Party, Fire and Theft Cover

Third party, fire and theft cover consists of the coverage covered under the third party coverage. Also, it provides additional coverage for the policyholder’s car caused by the event of fire or when the car is stolen. 

U

29. Under-Insurance

If you insure your vehicle at a lower sum insured than the market value of the vehicle then you would be deemed as self-insured for the difference in the event of loss or damage. You will only be partially compensated by your insurer up to the proportion of insurance. Do bear in mind that, you could be penalised if your car is under-insured. 

W

30. Waiver of Premium

An insurance policy clause that waives premium payments if the policyholder becomes critically ill, seriously injured or disabled. In other words, the insurance company will not require the insured to pay a fee to maintain the plan under certain conditions. Usually, these conditions include the death or disability of the person paying insurance premiums.

Did you know that PolicyStreet was announced as the Winner of the Young Entrepreneurs category in the ASEAN BUSINESS AWARD 2020 (ABA) ?

We surely hope this article was informative and insightful to you. From the top jargons provided above, you are definitely able to untangle the processes defined in your car insurance policy. It is significant to read through the documentation and get clarifications from your insurer if required. 

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To know more about car insurance do check out our website or give us a call – we are always ready to help. 

Ensuring you for a better tomorrow!

#PolicyStreetcares


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About Chee Poi L. Freshman   Writer

5 connections, 0 recommendations, 20 honor points.
Joined APSense since, October 26th, 2020, From Kuala Lumpur, Malaysia.

Created on Dec 11th 2020 01:50. Viewed 235 times.

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