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What is Car Insurance

Car insurance should be the next item on your list after a car. First, because it’s a legal requirement before you can drive a car in Malaysia, and second, because it’s for your own good.

For an agreed upon car insurance annual basic premium, you get financial protection against accidents and injuries involving your car and its passengers.

This also includes assistance such as minor roadside repairs, towing services and car replacement allowances provided in the event of car breakdowns.

Now, that’s a good deal if I’ve ever seen one.

What are the Types of Car Insurance?

In Malaysia, there are three types of car insurance with ascending order of premium rates as follows:

Third-party cover

When you get into a car accident, you might be lucky enough to escape unscathed, but what if another person—a third-party—was involved? You might have to pay medical fees and repair costs related to the third party’s injuries and vehicle damages. These fees can balloon into exorbitant amounts if you don’t protect yourself. Fortunately, a third-party cover car insurance plan protects you from burning a hole in your wallet when you’re involved in an accident with another party by indemnifying them for bodily injuries, deaths, and losses or damages to their cars. However, this also means that you can’t claim for any damages or injuries of your own. This car insurance type is the cheapest, and you’re required to at least have this plan if you’re to drive legally anywhere in Malaysia.

Third-party, -fire and theft cover

Similar to third-party cover, this protects you from third-party claims of loss or damage to property, injury, or death. The advantage of this plan is that you can also claim compensation if you wake up one day to a stolen or burned down car.

Comprehensive cover

As the name suggests, this plan covers you from the scenarios mentioned above, and it provides actual the most complete total protection for all parties involved in a road accident. In addition to third-party, fire and theft cover, you’re also protected from accidental loss or damage to your own car. For instance, there’s a deep hole on the road and you didn’t see it because it’s too dark to notice at night or the road is too slippery to drive in the rain, which causes you to uncontrollably crash into a tree on the roadside, your car bumper and front tyres are dropped off. In this accident, there’s no third party involved. Nevertheless, with a comprehensive car insurance, you can claim for the damage costs to repair your car. Side notes, first - this type of cover is compulsory for every car which is still under hire purchase agreement. Secondly, the insurers may not be able to cover cars which are too old for comprehensive plan because of their risk exposure. A comprehensive car insurance plan is highly recommended to provide total protection for your car, especially if you own a relatively expensive one. If you paid RM30,000 or more for your car, this car insurance type is the one for you.

What are the Exceptions in a Car Insurance Plan?

Of course, not all accidents or accident-related expenses will be covered by car insurance. Below is a list of things that are not covered by your typical plan:

Your own injury or death

Not even the comprehensive car insurance plan can cover you from your own injuries or death caused by a car accident. This means no hospitalisation allowance or funeral fee coverage; this is where personal accident insurance or medical insurance comes in.

Liability claims from your passengers

It pays to be a careful driver, especially if you have passengers. Typical car insurance plans don’t cover injuries to your passengers caused by a car accident. Whether one or several cars are involved, the passenger is usually in the clear and one or more of the drivers will be found negligent. For your peace of mind, most car insurance providers offer Passenger Liability Extension Cover as an add-on benefit.

Non-factory fitted car accessories

If you dress up your ride, you’ll have to fork out in case of damage to or loss of these accessories. Upgrading your car’s sound system might sound like a good idea, but you must remember that any add-ons to your car will not be covered by your car insurance. At any rate, installing additional car security features and accessories is a good idea for added protection from theft.

Car damage due to acts of nature

Natural disasters like earthquakes and floods can wreak havoc on your car; unfortunately, damage or loss due to these acts of nature isn’t covered by your typical car insurance plan. Depending on the provider, however, you may be able to get a policy that covers damage or loss due to floods, landslides, and earthquakes if you pay a higher premium.

Consequential loss, depreciation, wear and tear, and mechanical and technical failures Cars may be built to last, but all cars have a life span determined by how you use them and natural wear and tear. After 5 years with your car, you’ll lose approximately 40% of its initial value and of course this is self-borne implicit loss. This is why it’s vital to get car insurance while your car is brand new, because a car’s value goes down once it leaves the showroom.

How are Car Insurance Premium Rates Calculated?

In Malaysia, all insurance companies are required to adhere to a pricing schedule determined by Persatuan Insurans Am Malaysia (PIAM). Previously, region, vehicle type and capacity were the only main rating factors used in the tariff model. There are also other factors like optional coverages, number of named drivers, compulsory excess, loadings, No Claim Discount (NCD), etc. which may affect the final. In 2017, however, the pricing scheme has moved from a tiered system to a risk-based structure — a move spearheaded by Bank Negara Malaysia toward the phased deregulation of the car insurance industry, whereby the existing NCD structure shall remain.

Car insurance premiums are now determined by prevailing market prices, after the insurance company has assessed your risk. Using the new pricing structure, each insurance company can apply different rating factors which may include but not limited to car model and manufacturer, car use, your gender, age, occupation, claims history, and location to generate premium rates for various market segments. Motor detariffication aims to provide fairer pricing and wider product options for the consumers. Now, persons with better risk-profiles can get lower premiums rates based on the insurer’s internal data / claims experience.