What Happens When Your Car Is Underinsured

Dharshaini Grace

Dharshaini Grace

Last updated 21 August, 2023

Have you ever thought if your car is protected at the right value? I was sitting down with a friend the other day when I found out that her car was underinsured - and that’s a BAD thing! 

What does underinsured or underinsurance mean? 


Under-insure or under-insurance is when the insured value is lower than the actual market value of the insured asset. This could be the value of your car and your home when you purchased your insurance. 

For example, you own a Mercedes-Benz car (RM 313,888 worth) but you purchased insurance coverage at the value (Sum Insured) of a Perodua Myvi (RM46,500 worth). That means, if anything unfortunate happens to your car, you’ll only be getting compensation at the value of a Perodua Myvi or even a lesser amount!

How bad is BAD when you underinsure your vehicle? 

So when my friend’s car got stolen, she only managed to get compensation for her car’s sum insured. However the bad news, she still owed the bank a sum for her car’s loan and because her car was underinsured, she had to continue paying the bank for her a car that she no longer own. This was because her claim from the sum insured wasn’t enough to cover her car loan! 

YES, you’ll have to fork out your OWN money! 


This also applies if your car is damaged! Unless you’re rich and have the money to settle the damages, you’ll have to pay for the difference of the sum insured.


For example: When you first bought your car, its market value was RM60,000. But you’ve underinsured your car for RM40,000. A year later, you get into an accident and needed to claim from your comprehensive policy. The amount needed to cover the damage was RM10,000 but at the time of the claim, the market value of your car is RM55,000. 

Because you’ve underinsured your car, the “average clause” applies.

To get the “average clause” figure, use the following formula: 


So with the average clause in place, you can only claim RM7,272 instead of the actual loss of RM10,000. With a shortfall of RM2,728, you’ll have to use your own money to settle the difference! 

Beware of CHEAPER premiums!


Now, how did my friend end up in this situation? It all happened because she found a cheaper premium that was offered by an insurance agent! 

But sadly, this is a situation that could happen to anyone. In fact, many aren’t aware that they’re under-insuring their vehicles and rely mostly on agents to help them with renewals. Not that every agent does it, but it’s important that you get yourself educated to get your vehicle protected at the right market value too. 

How to check your car’s market value? 

Most insurance websites will automatically calculate your vehicle’s market value upon your insurance application online. 

However, you can also use the following websites to check your vehicle’s market value. Just input your car’s brand, model, year of manufacture, engine, transmission and variant. 

Now you know the risks of under-insuring your vehicle, protect yourself and your vehicle by getting the right coverage! If you’re looking for car insurance, compare and find the best one for you today. Visit our website at www.comparehero.my/car-insurance



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