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Why is Car Insurance Mandatory in Malaysia?

While you’re renewing your car insurance this year, you may stop to wonder – do I really need insurance for my vehicle? After all, no other type of insurance is mandatory in Malaysia – what’s different about car insurance?

Here’s everything you should know about car insurance and why it’s so important that you have it.

1. Is car insurance mandatory in Malaysia?

In a nutshell, yes. At the bare minimum, third party car insurance is compulsory for all drivers and if you’re a car owner, you’ll need to purchase motor insurance before you’re able to renew your road tax. However, it’s always advisable to purchase a comprehensive insurance plan which offers you the most protection possible in the case of an accident.

Basically, motor insurance and road tax go hand-in-hand. You won’t be able to apply for your road tax through the Road Transport Department (JPJ) Malaysia without owning a car insurance policy for your vehicle. And if you’re caught driving without road tax, fines can go up to a whopping RM 3,000 under Section 14(4) of the Road Transport Act (RTA) 1987.

2. Why is car insurance mandatory?

No matter how skilled a driver you are, a million things could happen on the road which are beyond your control.

The most basic premise of having car insurance is that if you injure someone on the road in an accident, you’ll be able to make a claim to compensate him or her for their injuries as well as any physical damage done to their vehicle.

That’s what a basic car insurance policy covers – repairs for damage to the third party’s car and any medical claims for any of their injuries due to the accident.

But what about your own vehicle, you ask?

For protection and coverage for damage done to your own vehicle, you’ll need to purchase a comprehensive car insurance plan that includes any damage to your own vehicle as well. When you get into an accident, the last thing you want to worry about is how you’re going to afford repairs for your car.

It’s also worth noting that car insurance does not cover any of your own bodily injuries due to an accident. For that, you’ll need personal accident insurance which requires a separate policy.

It’s important to note the different kinds of car insurance available in the market to get a better idea of what’s right for your own situation. The last thing you want to do is underinsure and end up paying exorbitant amounts when an accident strikes.

3. What type of car insurance should I buy?

While there are three main types of car insurance for you to consider, it’s usually advised that drivers purchase comprehensive cover, as it by far offers the most protection.

Comprehensive cover offers the widest coverage including third party injuries and death, loss or damage to the other driver’s vehicle as well as loss or damage to your own vehicle due to the accident. Not to mention, it also offers coverage for your car if it’s stolen or in case your car catches fire.

That being said, it’s always important you choose the policy that’s right for your situation and needs as different people have different levels of risk for their car. For instance, Ahmad who lives in an area prone to car theft would need more comprehensive coverage specifically for car theft than Lisa who is more concerned about coverage in an accident.

| See also: 5 Easy Steps to Buying Car Insurance |

4. Choose the right add-ons

Add-ons are basically your way of customising your car insurance policy to fit your specific needs. Think of the risks your car is most prone to and make sure that if your policy doesn’t cover it already, you find the appropriate add-ons to cover those risks.

Add-ons could include windshield protection, natural disaster protection, passenger liability and even strikes and riots. Consider purchasing the car insurance add-ons that fit your situation and skip on the ones you don’t really need.

For instance, you may live in an area where natural disasters are rare and choose to skip on that add-on. Instead, you might be an e-hailing driver and may opt for passenger liability because you frequently drive others in your car.

5. What happens if I don’t purchase car insurance?

You could incur a pretty hefty penalty if you forget or choose not to renew your car insurance. Fines under the Road Transport Act 1987 could go up to RM 1,000 with a potential three years in prison if you’re caught driving without it. And since you won’t be able to renew your road tax without car insurance, that’s another possible fine of up to RM 3,000.

That’s just the start though. You’ll need to also fork out your own money to cover any repairs to the other driver’s vehicle, repairs for your own car as well as all of the other party’s medical expenses due to the accident.

Costs like these could total tens or even hundreds of thousands of ringgit! Just imagine how that money could be spent otherwise – that vacation you’ve been waiting for, a down payment on an apartment, a wedding fund?

The absolute minimum coverage you need in Malaysia is act cover, which is required by the JPJ. Keep in mind, this coverage only scratches the surface with its coverage, only covering legal liability for the death or injury of the other driver involved.

What it doesn’t cover is injuries or death of the third party driver’s passengers, damage to their car or yours, car theft or accidental fires for your car.

While this may be what’s minimally required by law, and may be the cheapest option, it’s really not advisable as it basically offers zero coverage for yourself should you run into any accidents on the road. In fact, it’s not that common for insurers to provide or write this type of policy since it doesn’t offer much protection.

It’s a much better idea to purchase comprehensive cover that gives your money’s worth when facing any hazards on the road. And since Malaysian drivers don’t exactly have the best reputation on the roads, you’ll probably be thankful you took the extra precaution.

6. How do I choose the best car insurance policy?

There are a few things you might want to consider when choosing the policy that’s right for you:

  • Budget

This may sound like common sense, but it’s so important to choose a policy you can realistically afford for the long-term. It makes no sense to choose a policy with great benefits only to realise later on you can’t afford it. The policy will lapse and you’ll be at a huge loss.

Instead, stay realistic about your budget and get the best deal possible based on your own unique situation. The good news is that with detariffication, insurers are now able to offer lower premiums to save drivers through telematics.

It’s never too late to plan for your future and find a suitable plan according to your situation. Take a look at your other expenses and try to factor in a comprehensive car insurance plan that caters to your needs without breaking the bank.

  • Coverage amount

The simplest way to figure out how much coverage you need is through a valuation report of your car. MyCarInfo provides an estimate of how much your car is worth. From there, you can typically insure 5% more or less of the value of your car.

You’ll also need to choose between insuring your car for an agreed value, which is a set amount, or a market value, meaning the sum insured for your car based on its value the date of the accident or theft.

For example, if Sara chooses to insure her Perodua MyVi which she bought for RM 50,000 in 2018, using market value, she might receive RM 25,000 from her insurer in 2022 due to depreciation. On the other hand, if she chose an agreed value of RM 30,000 with her insurer, she would receive RM 30,000 as her sum insured regardless of her car’s value in the market.

Final Word

Regardless of whether you think you need car insurance or not, the fact is, it’s a legal requirement that carries some serious consequences if you fail to comply. So go ahead and choose a plan that will bring you the best protection possible and give you your money’s worth for the long term.

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