When renewing, some people reduce their Sum Insured (the maximum the insurer pays for your car) to save a bit on premium. It feels harmless. It isn't.
The problem: under-insurance
If your car is insured for less than its market value, insurers apply a penalty called "average", your payout gets cut proportionally, on every claim, not just total loss.
Payout = (Sum Insured ÷ Market Value) × Your Loss
A real example
Your car's market value is RM42,000, but you insured it for RM30,000 to save on premium. You get into an accident with RM10,000 of damage.
- RM30,000 ÷ RM42,000 = 71.4%
- 71.4% × RM10,000 = RM7,140 payout
- You pay the missing RM2,860 from your own pocket, plus your excess.
The premium you "saved"? Probably less than RM100.
The 10% rule
As a general guide, your Sum Insured should stay within 10% of your car's current market value. Insure at market value and you're fully protected; go more than 10% below and the under-insurance penalty starts to bite.
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