"Boss, can you lower the Sum Insured's of my car, ah?"
An uncle once lowered his car's Sum Insured to save a few ten's of Ringgit and when his car was met with an accident, he had to bear a portion of the repair cost. He complained that the insurance company should pay the full repair cost.
Well uncle, we've got news for you! You shouldn't have lowered your car insurance to the point of it being deemed as Underinsurance!
Sorry uncle
*Underinsurance is the insufficient insurance coverage that leaves the policyholder responsible for a large percentage of a total loss or expense and may lead to financial hardship.
How to determine the Underinsurance amount? Simple!
Let's say that you own a 2019 Perodua Myvi 1.5AV and after conducting checks in www.mycarinfo.com.my, you find that the Market Value of your car is at RM42,000.00, which is the most suitable amount to insure your car.
Now, if you'd still want to lower your car's Sum Insured for a cheaper premium, YES you can! However, note that you can only lower it by 10% (RM4,200.00) of RM42,000.00 which brings the total of RM37,800.00.
Anything lower than RM37,8000.00 would be deemed as Underinsurance, so be careful!
So what happens when your car is Underinsured?
For instance, if the market value of your car is RM42,000 but you only insured it for RM30,000, then you could be penalized for Underinsurance.
Assuming the repair cost is assessed at RM10,000, instead of the insurance company paying the full amount, you could be made to bear a portion of the repair cost in proportion to the Underinsurance as follows:
Sum Insured RM30,000
------------------------- x Loss RM10,000
Market Value RM42,000
= RM7,142.85
Therefore the Insurance Company will only pay RM7,142.85 while the balance of RM2,857.15 (RM10,000 - RM7,142.85) will be PAID BY YOU.
All in all, we at Atur would advise everyone to invest the extra Ringgit to save yourself from paying more in future.
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