Thursday, August 9, 2012

Motor insurance and you – Part 1

By law, every motor vehicle must be covered by a form of motor insurance before road tax is issued and allowed on the road. Do not take motor insurance lightly.

Not being insured is an offence which is like driving on the road without paying road tax. The Road Transport Act 1987 states that motor vehicles must have at least a minimum form of motor insurance coverage to be on the road.

Yet another reason why motor insurance should be taken seriously is that owning a motor vehicle is the next highest investment after the house. Most Malaysians own a motor vehicle long before owning a house, with one in every four Malaysians owning a motor vehicle.

Guided by Bank Negara, motor insurance is a system whereby each motor vehicle owner pays a premium (and becomes a policyholder) to secure the protection against personal losses and third party claims. A standard premium guide approved by Bank Negara and monitored by the Persatuan Insuran Am Malaysia (PIAM) governs the rate.

Basically, there are three types of motor insurance coverage -- Act Only, Third Party and Comprehensive.

The Act Only insurance policy provides the minimum cover required by the law, hence its name. Under the Act, drivers of motor vehicles have to buy motor insurance to ensure that drivers can meet their liabilities if they injure or cause the death of other people in an accident. Act Only policies are rarely purchased as the insurance protection is quite limited because vehicle’s owner is liable to pay for third party claims for damages.

Third Party motor insurance is wider than Act Only insurance. Besides providing cover against death and injury to third parties, it provides protection against other legal liabilities such as damages to the property of third party (usually somebody else's motor vehicle or structures like fencing and gates) and certain specified legal costs. An important cover is that the vehicle can be driven by anybody with a valid driving license and consent of the owner within the international boundaries of the Federation of Malaysia. For third party insurance, it simply means that the insurance company protects the policy holder against third party claims but any damage incurred to the policyholder's vehicle has to be borne by the policyholder's own money.

Under Third Party cover, a policyholder may opt to include protection for loss or damage to one's own vehicle due to specific risks like fire or theft only. However, most motorists find it more cost effective and worthwhile to pay a little bit more and be protected under the Comprehensive motor insurance policy instead.

Comprehensive insurance is the widest form of cover available but not every type of risk is covered. In addition to what are basically provided for under Act Only and Third Party coverage, Comprehensive insurance has other types of coverage to include loss or damage to the motor vehicle as a result of fire or theft. More importantly, this policy covers accidental damages to the insured's own vehicle.

It means the insurance company will pay the vehicle owner's claims on damages to the vehicle incurred in an accident in addition to settling third party claims. For example, a driver knocks into another car. After the usual formalities, the insurance company will pay for the vehicle to be repaired at the insurance company's panel of workshops and also the damages incurred by the other party if the insurance policy holder is at fault. The insurance company will also pay the sum insured or prevailing value of the vehicle (whichever is lower) to the owner if the vehicle is stolen.

Additional coverage for a small additional premium under motor insurance includes:

* Breakage of glass in windscreens and windows
* Floods, landslide, landslip or other convulsions of nature
* Legal liability of passengers for acts of negligence (such as the passenger opening the car door and causing an accident with a moving vehicle)
* Use of private cars for tuition purposes (such as teaching a novice driver how to drive in the policyholder's private car)

Owners of vehicles pay insurance premium according to the engine capacity, type and value of vehicle and any other additional coverage like windscreen damage and passenger liability required. Buyers of new vehicles are advised to check the sum insured and never under or over declare the amount as false information provided in the insurance application form is an offence punishable by law. Bear in mind to include enhanced value additional accessories like audio systems and sports wheels.

When filling in the application form for insurance, ensure all the details are accurate. Even if the motor vehicle salesperson fills in the forms, check the details carefully before signing the dotted line. You have every right to ask for clarification if you are not sure. Just remember that when a claim is made and the details in the form do not tally with the actual details (like NRIC number, spelling of policyholder's name, vehicle engine and chassis numbers), the insurance company reserves the right to refuse entertaining the claims.


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