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Do you need motor insurance add-on covers?
Lim Siew May 
Some people think comprehensive motor insurance covers against every calamity – 123RF
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When we buy comprehensive motor insurance cover, some of us may have a false sense of security that we are covered against every calamity. Unfortunately, this is not the case, for insurance often comes with exclusions that are often overlooked by many.

For instance, while you will be reimbursed if your car is damaged during a collision, you are not covered when it is damaged or stolen during a strike, riot and civil commotion.

“Look at how relevant certain risks are to you, and decide if you should insure yourself against them.” – Roho

This is not to say you should get all paranoid and cover your vehicles against every imaginable risk. iBanding.com co-founder Luke Roho believes that of the many motor insurance add-on covers, windscreen and special perils are particularly relevant to local drivers. iBanding.com is a platform that offers independent information and education on insurance.

Roho looks at two considerations when determining whether to buy insurance for protection against a certain risk. First, you should consider your historical claims. “Look at how relevant certain risks are to you, and decide if you should insure yourself against them,” he says.

“For instance, I never have cracked windscreen so far, that’s why I don’t buy one for myself. If I ever need to, I will just use the savings from my premium for the repair. I’d rather save that money and put it aside as my emergency fund. Assuming I have been driving for 10 years without paying any premium for a windscreen cover, that savings on premiums after 10 years, coupled with interests earned, can cover my repair,” he explains.

Next, if the repair cost is too high for you, consider insuring it. The premium for a windscreen cover, Roho adds, costs 15% of your windscreen sum insured. “You buy insurance when you cannot bear the financial cost of a misfortune, the same reason why some people buy medical insurance so they don’t have to pay for expensive operations.

“For instance, if it costs RM5,000 to pay for a broken windscreen, you might not want to buy it if you already have emergency funds set aside for the repair. You can save money on the premium and let it earn interest instead,” he explains.

On this note, a windscreen cover is particularly relevant for people who frequently drive their cars. If you fit this profile and do not have extra money to pay for a broken windscreen, Roho believes you are a good candidate for this cover.

For those with a comprehensive motor insurance policy, another benefit of getting a windscreen cover is that it keeps your no claim discount (NCD) intact, for you do not need to claim for the repair or replacement cost of a broken windscreen.

The NCD is designed to reward those who do not make a claim during the policy year. The entitlement ranges from 25% after one continuous year without claim, to a significant 55% after five continuous years and beyond, which translates into significant savings in the long run.

There are, however, restrictions to this add-on cover. “Many people don’t realise that even though your windscreen cover is valid for one year, once your windscreen is cracked, you can get it replaced only once. You have to buy a new windscreen cover again after claiming for the repair,” says Roho.

VKA Wealth Planners Sdn Bhd licensed financial planner Pang Wan Khim recommends having an add-on cover for windscreens, as they are fragile and susceptible to the risk of damage.

“When we are unprepared financially, what usually happens is that we may choose the ‘cheapest’ plan, without considering certain perils that are applicable to our situation.” – Pang

“Even a tiny stone can easily crack your windscreen. The premium is definitely a small price to pay in the event your windscreen gets damaged. To me, it’s a must regardless of whether you drive out often or not, as a car parked in the basement may also become ‘a victim’ anytime,” she says.

 

Special perils

Aside from insurance protection against floods, which is common in Malaysia, other perils that can occur are storms, typhoons, volcanic eruptions, earthquakes and landslides, explains Roho. Coverage for special perils, he adds, is only 0.5% of your sum insured. “If your vehicle is insured for RM50,000, this add-on coverage will cost you RM250,” he explains.

Roho recommends buying a cover if your car represents a major investment to you. Also, look at your lifestyle and geographical location, and the possible risks associated with them.

“If you live in an area where floods take place, like what we saw in Penang recently, definitely buy a cover that insures you against floods,” he says.

“In general, we do have lots of rain, flash floods and also thunderstorms that cause trees to fall on cars. Malaysia is flood prone, hence, buying a cover for special perils makes sense.”

Assuming you park your car outside your workplace or at home, Roho recommends a cover for special perils. “However, if you stay in a condominium, your car is parked in a covered car park and you hardly drive, you can afford to take risk and save your money (on your insurance premium) instead, because the likelihood of getting your car flooded is low,” he says.

Pang echoes Roho’s view on the key considerations on location of one’s car and its usage when deciding whether to buy a cover for special perils. She says another point to consider is the health of your cash flow. Each “peace of mind”, she adds, comes with a cost, and a person who may already have a cash flow dilemma could be cash-strapped when it becomes renewable annually.

“When we are unprepared financially, what usually happens is that we may choose the ‘cheapest’ plan, without considering certain perils that are applicable to our situation.”

Here’s a thought: Would buying add-on covers reduce your overall risk profile as a driver, and lower your premium for the main insurance cover, given the de-tariffication of motor insurance that took effect in July 2017?

Pang doesn’t think it will result in lower risk profile for the driver, although your total premium may be lower or higher depending on which insurer you buy your policy from. “De-tariffication of motor insurance is premised on risk-based pricing. The risk factors include gender of driver, type of car, driver profile, claim history, occupation and usage of car. Hence, a driver’s risk profile should not change just because the driver purchases add-ons,” she says.

While unrelated to add-ons, she highlights another motor insurance fact that is worth knowing – that is, finding out whether your car is insured under agreed or market value. “If there is an agreed value made available by your insurer, then I recommend selecting agreed value. Agreed value is the sum insured that is fixed by the agreement between the insurer and the car owner. In the event of total loss, the company will reimburse you the agreed amount.

“If your car is insured based on market value, the insurer will reimburse you the car’s market value at the time of loss (which is lower than the sum insured at renewal or agreed value as cars tend to depreciate with time),” she says, adding it is hard to state the premium difference between the two since pricing is subjective.



This article first appeared in Focus Malaysia Issue 266.