GoBear Bares All: Should You Get Cheap Car Insurance?
According to BNM’s Annual Insurance Statistics 2016, insurance companies collected RM7.91 billion for the year.
Divided over the approximately 27.6 million registered vehicles in the country as of end-2016 and you get an average motor insurance premium of RM286 per vehicle per year.
That doesn’t seem too pricey–but keep in mind averages are always skewed by the outliers. And with car insurance being mandatory, even a few hundred extra ringgit per year can be a burden if you have many other commitments. So it’s little surprise people try for the cheapest car insurance they can get.
But is going cheap on car insurance the right move? How do you define cheap car insurance anyway? In this detailed article, we will explore what it means to have cheap car insurance and look at all the nuances involved in making this decision.
First, let’s begin by defining the issue.
What is cheap car insurance anyway?
When it comes to insurance, cheap is a subjective term that can be hard to define. To determine whether a car insurance plan is cheap or not, you first need to understand how car insurance is priced. Here’s a quick refresher on the main factors that go into car insurance pricing:
Type of coverage
Broadly speaking, there are three main coverage types: third-party, third-party plus fire and theft, and comprehensive coverage.
Third-party coverage means only the other party is covered, for instance in a two-vehicle collision. Third-party coverage plus fire and theft, as the name implies, covers your vehicle in the case of fire damage or it getting stolen.
Comprehensive coverage includes damage to your own vehicle, however there are many variations within this umbrella. Depending on the type of comprehensive coverage policy, it may include additional features such as personal accident coverage, passenger liability, flood protection, and windscreen/windows coverage.
You can base this amount on the market value of your vehicle or an agreed upon value decided between you and the insurance provider. The former will always decrease due to depreciation and also creates more uncertainty which is why it is generally recommended to choose the latter.
Let’s say you had chosen to get your car insured based on market value and at the time you got it insured, the market value was RM100,000. Five years later, after an unfortunate accident, you find yourself having to claim for the total value of the car. Due to depreciation (let’s say 10% per year) the market value is now determined to be RM50,000. That’s the payout you’re going to get.
On the other hand, if you had gone for the latter option and had agreed on a sum insured of say, RM75,000 with your insurer, then you would have gotten that amount regardless of depreciation.
This includes its engine capacity, age, safety features, and model. Some models are statistically more theft-prone and may thus cost more to insure. Have you checked out some of the most stolen cars in Malaysia?
This can range from your age, sex, license status, claims history, traffic offence record, credit score, and even your geographical location (insurance companies assess some areas to be higher risk than others).
With so many individual factors influencing the final price of a car insurance plan, you can see why ‘cheap’ car insurance is hard to define. So, for us to make an apples-to-apples comparison, we should remove all the individual driver and vehicle statistics, leaving us with the definition of cheap car insurance as:
Cheap car insurance is an insurance plan with a low level of coverage and a low insured sum.
But cheap is still a sliding scale–cheap doesn’t necessarily mean cheapest. So, what is the cheapest car insurance in Malaysia?
The cheapest car insurance - Third-party coverage only
The cheapest car insurance option in Malaysia would be the bare minimum required under the law, which is third-party coverage only. As of 2019, prices for third-party motor insurance are still tariffed to keep it affordable for the B40 group.
However, as the market moves toward full liberalisation, you can expect these premiums to rise as insurance companies are currently selling it at a loss (they are paying out way more in claims than they are receiving in premium – are Malaysians really that bad drivers?)
For the moment, as a tariffed product, insurance providers must charge premiums based solely on two factors: the engine capacity of the vehicle and location (West Malaysia has higher premiums compared to East Malaysia).
Of course, this is before considering the No Claims Discount, which entitles you to discounts based on how long you’ve gone without making any claims.
Should you opt for this option, this means your vehicle is completely uninsured. In the event of any unfortunate incident, no matter if it is your fault or not, you will have to fully bear the loss or damages.
Why do people choose the cheapest car insurance possible?
Being one hundred percent liable for any and all damages associated with your vehicle is a daunting thought, so it is not something that we recommend. Yet, many motorists still opt for the cheapest and lowest level of coverage possible.
Why do they do this? Aside from the obvious cost factor, here a few possible reasons:
Poor risk estimation
Neuroscience has shown that the human brain is a poor judge of risk, particularly the kind of risk involved in the modern world. Combine this with the fact that most drivers also overestimate their driving skill, and what you get is a whole bunch of people going “It won’t happen to me!”.
Don’t forget you also have to consider other drivers – you may be a fantastic driver, but if you share the road with enough bad drivers enough times, the odds are still stacked against you.
The statistics in Malaysia support this. Remember the reason motor insurance was liberalised in the first place is because it was loss-making for the insurance companies - people were getting into too many accidents!
Furthermore, while the proportion of traffic fatalities per number of vehicles has been on a decreasing trend, the proportion of road accidents has actually been increasing.
Owning a very old or rarely used vehicle
Sometimes, first-party insurance may not be worth it, for instance in the case of an old vehicle with little market value remaining. This is not always a choice–insurance companies as a rule will not insure your vehicle if it is more than 15 years old or has under RM10,000 remaining in market value.
High individual risk factors
Somewhat related to cost–people assessed to be higher risk will get charged higher premiums for the same level of coverage. Hence, those with many repeat traffic offences and a poor credit score may simply find getting better coverage too expensive again leaving them with no choice, at least until their financial situation improves.
Too many choices
Research shows having an overabundance of choices may cause dissatisfaction and ‘paralysis by analysis’. This is the paradox of choice – too few choices are bad, but too many choices aren’t good either.
With 21 general insurance companies in Malaysia, each with its own range of car insurance products, sometimes it’s just easier to default to the cheapest and bare minimum option.
Lack of trust in insurance companies
When you hear the word ‘insurance agent’, what is the first thought that comes to mind? Let’s face it, true or not, the stereotype of the smooth-talking and hard-selling insurance agent who won’t take no for an answer (and may or may not be your friend/relative) exists for a reason.
Add any bad experiences with customer service when filing claims and what you get is a general negative perception that is hard to break.
What level of coverage makes the most sense to you? 5 questions to ask yourself
Obviously, some of these reasons make much more sense than others.
Getting the cheapest insurance possible because you’ve overestimated your driving skills, because you don’t want to do the research, or because you don’t trust insurance companies are not good reasons to expose yourself to that amount of potential costs.
But how best to determine the level of coverage that makes the most sense for your situation? You know yourself most, making you the best judge of that. Here are five questions you can ask yourself to help you make the smartest decision.
1. Do I qualify for a higher level of coverage?
As mentioned above, sometimes you don’t have a choice in the matter.
If you don’t qualify for anything beyond third-party coverage because of the age and value of your vehicle, then there’s nothing you can do about it for the moment (stay tuned for some upcoming articles where we will give you some ways to help remedy this).
2. Do I have an emergency fund to cover any damages to my vehicle?
If your vehicle gets into a major accident, do you have the financial resources to pay for it out of pocket?
Keep in mind that even with first-party coverage, you still must ask yourself this question to determine how much excess you can afford. Excess, or deductible, is the amount you must pay out of pocket before you can file a claim. The higher the excess, the lower the premiums.
3. What do I use my vehicle for?
How important is your vehicle to your daily life?
If you were to lose the use of your vehicle for a few weeks, would that translate into a loss of income? Drivers for ride-sharing companies are one example (although they automatically require a higher level of insurance coverage), but if you absolutely rely on your vehicle for your career, then a higher level of coverage only makes sense.
4. How much do I know about cars?
If your car gets a flat tyre, are you capable of changing it to the spare without having to call for roadside assistance?
If your car overheats, do you know how to stop by the petrol station and refill your radiator? If the very thought of having to change your own tire fills you with dread, it may be best for you to get an insurance plan that also includes emergency roadside assistance.
5. How much do I value peace of mind?
A very subjective question, yet an important one when discussing insurance.
Imagine yourself driving around in your car with no first-party coverage – how at ease would you feel? There’s no sense adding more anxiety to your life if you can help it, and peace of mind is a big reason why people are willing to spend on more comprehensive insurance.
Choosing a trustworthy insurance provider suited for your needs - the GoBear guide
Even though we mentioned mistrust of insurance companies as a bad reason for choosing the lowest level of insurance coverage, the fact remains that many people just don’t like dealing with insurance agents. Fortunately, you don’t have to.
Today, more and more Malaysians are buying their insurance online, where you can easily compare prices and plans. This has been common practice in many other countries for quite some time now, so it’s great that Malaysian consumers can now enjoy this privilege.
But with 21 insurance providers to choose from, you still face a host of options. That’s why we at GoBear have prepared the most comprehensive guide possible to car insurance in Malaysia (and detariffication in general).
While we have put a lot of effort into our car insurance guide and consider to be one of the best if not the best one out there today, we also realise that you need to complement e-comparison tools with honest reviews and experiences by real customers.
Therefore, after using our e-guide and comparison tool to narrow down your list of options, here are two sources we recommend you tap to reaffirm your decision.
Ask friends and family on social media
Social media allows you to reach out to almost your entire network of friends and family with a simple status update. For example, all you have to do is to write a ‘looking for recommendations’ Facebook status with your narrowed down list and you’re certain to get a flood of honest opinions of first-hand experiences.
Reach out to others on forums
Although forums may seem less popular nowadays thanks to social media, they are still a great place to get unbiased opinions from people outside your social circle.
Three forums which will probably give you a good amount of honest feedback on the various insurance plans out there would be the Lowyat finance forum, the Investlah insurance forum, and the Malaysia subreddit.
Don't think about "cheap" car insurance, think about the RIGHT car insurance instead.
When it comes to car insurance, or any form of insurance for that matter, it’s not about "cheap" versus "expensive" car insurance – it’s about the right insurance plan that fits you best, it’s about value.
Here at GoBear we have compiled a host of resources to help you make the right choice and we are continually working on adding more. Please keep our site bookmarked and follow us on social media so you’ll always stay up to date on our latest and most helpful content.
Is your car insurance and road tax expiring inside the next 60 days? Then start your renewal process right away!