Get to Know the Basics of General Insurance in 5 Minutes
You may have heard the term "general insurance" when shopping for insurance. But what is it, and what does it cover?
Understanding the basics of general insurance will help you make better decisions when the time comes to protect yourself, your family, and your property.
What is General Insurance and How Does it Work
General insurance covers a broad range of risks, including theft, fire, liability for personal injury, damage to property, and even business interruption. It's essential to have general insurance in place to protect yourself from financial losses resulting from these risks.
General insurance works by spreading the financial risk of potential losses across a large number of policyholders. The premium you pay will go into a pool of funds.
As a policyholder, if you suffer a covered loss, you can claim your policy and receive compensation from the insurer. Your insurer will use the pool of funds to assist with repairs, replacements, or compensation up to your policy limits.
In a nutshell, general insurance helps to protect the policyholder from incurring a potentially devastating financial loss.
General Insurance vs. Life Insurance
Both types of insurance are essential, but they serve different purposes. Here's a look at the key differences between general and life insurance.
Life insurance is designed to protect your loved ones financially. If you pass on while having an active life insurance policy, the death benefit will be paid out to your beneficiaries. Life insurance can also help replace your income if you meet a premature death.
On the other hand, general insurance includes any coverage that doesn't fall into the life insurance category. General insurance is meant to protect you from the costs associated with unexpected events. For example, if you get into a car accident, your car insurance policy would cover the cost of repairs to your vehicle. If your home were to catch fire, your homeowner's insurance would cover the cost of rebuilding.
A general insurance policy differs from a life insurance policy in four main ways:
Period of coverage
Life insurance offers long-term coverage, providing either term life or whole-life policies. Life insurance policies can be either term life or whole-life policies. Term-life policies provide coverage for a set period, usually 10-20 years, and are generally less expensive than whole-life policies. As the name suggests, whole-life policies provide coverage for your entire life.
On the other hand, general insurance only offers annual coverage or a set period. For example, if you purchase travel insurance only for a single trip, it will only cover the duration of your trip.
Premium
For life insurance, you can pay the premium monthly, quarterly, or yearly while the premium for general insurance is paid in one lump sum during purchase or renewal.
A general insurance policy is also typically cheaper than life insurance and has shorter policy terms.
Terms of protection
Life insurance provides financial security for your nominee(s), who will receive the sum assured in the event of your death. The sum assured can also be paid to you upon maturity of your policy or in other circumstances, such as critical illness.
Meanwhile, if you want to claim your general insurance policy, your insurance company will pay out the claim based on specific events. For example, if you encounter a road accident and have a comprehensive motor policy, you can claim your car repairs with your insurer.
Policy value
You can choose the sum assured for your life insurance policy based on your needs and financial capability. In contrast, for general insurance, the value of your asset will determine the sum insured.
General Insurance Products and Categories
When people think of insurance, they often think of health insurance or motor insurance. However, there is a vast world of insurance beyond those two types. Let's explore some general insurance products and categories available to consumers.
We can divide General Insurance into two main categories: commercial lines and personal lines.
Commercial lines are insurance products offered to companies and corporations, while personal lines are insurance products offered to individuals.
Within these two categories, there are various product types, each of which offers its unique benefits.
Personal Lines Products
Listed below are the main types of personal lines insurance products available in Malaysia.
Motor Insurance
Under the Road Transport Act 1987, all vehicles must have valid motor insurance. While it is a legal requirement, not all policies are created equal.
The type of policy you choose will depend on several factors, including the value of your vehicle, how often you drive, and your circumstances.
However, all policies can broadly be classified into three categories based on the level of protection they offer: fully comprehensive cover, third party fire and theft cover, and third-party only cover.
a) Comprehensive
Fully comprehensive insurance is the highest level of protection you can buy for your vehicle. It covers you if your vehicle is damaged or stolen.
You are also covered for damages, injuries, or death caused to another person or property. Depending on the insurer, the products might also have many extra benefits, like windscreen protection.
Comprehensive covers tend to cost more because of the level of protection they provide.
b) Third party, fire, and theft
Third party, fire, and theft insurance cover you for damage caused by your vehicle to other people's property and any injuries or deaths caused to other people. It also covers if your car is stolen or damaged by fire.
c) Third party
Third party insurance is the minimum level of protection you can buy for your vehicle in Malaysia. It covers you for damage caused by your vehicle to other people's property and any injuries or deaths caused to other people. It does not provide any cover for damage to your vehicle.
| Comprehensive | Third Party, Fire, and Theft | Third Party | |
| Damages, injuries, or death caused to another person or property | Yes | Yes | Yes |
| Vehicle stolen or damaged by fire | Yes | Yes | No |
| Loss or damage to your vehicle caused by accident | Yes | No | No |
Fire/Homeowner/Householder Insurance
These policies protect your home, building, or contents from risks like explosions, thefts, and fires.
a) Fire
A basic fire insurance policy covers the insured building and its contents against damage or losses caused by fire and lightning. Depending on your insurer, you can add coverage against earthquakes, floods, and more.
b) Homeowner
A homeowner's insurance policy usually has more benefits than a basic fire insurance policy. The coverage includes theft, vandalism, fire, flooding, and other natural disasters.
Be sure to include renovation and improvement costs when choosing the amount insured. Adding all the expenses will ensure that if your house is damaged or destroyed, you don't have to worry about rebuilding it.
c) Householder
It's important to insure your home's contents too. Buying insurance for the things inside is essential to protecting your home. Your householder insurance policy can protect your belongings and even cover severe or fatal injuries to you or your family.
Medical Insurance
The importance of medical insurance can't be overstated. Medical treatment can be expensive, and a medical insurance policy can protect you and your loved ones in case of an accident or illness.
Personal Accident (PA) Insurance
Personal accident insurance policies vary, but most will provide benefits for accidental death, disability, and injuries. PA differs from medical and life insurance in that it only compensates you if you suffer from the conditions caused solely by violent, accidental, external, and visible events.
Many PA insurers will offer optional riders that provide additional coverage for your vehicle, such as free towing services.
The cost of a personal accident policy depends on several factors, including your age, what kind of coverage you want, and the amount of the policy benefit payout. Generally speaking, PA insurance is relatively affordable, especially considering the peace of mind it can provide.
Travel Insurance
Travel insurance is a type of insurance that covers you, your family, or your travel group in case of an emergency while you're traveling. It can cover medical expenses, lost or stolen baggage, trip cancellation, and more.
- Medical expenses: This can include things like hospital stays, doctor's visits, and ambulance transportation.
- Lost or stolen baggage: If your luggage is lost or stolen while you're traveling, travel insurance can help reimburse you for the cost of replacing your belongings.
- Trip cancellation: A travel insurance policy can reimburse you when your trip is canceled due to a covered reason (such as sickness).
- Emergency evacuation: If there is an emergency while you're traveling and you need to be evacuated, travel insurance can help cover the cost of transportation.
You can choose a policy that covers a single trip, or if you travel frequently, consider an annual plan that is more value for money.
Commercial Line Products
Businesses and corporations buy commercial lines insurance to protect their assets from risks and liabilities. Business owners can choose from multiple protection plans to minimize financial impact based on their needs.
Business Fire Insurance, Engineering Insurance, Construction Insurance, Marine Insurance, Liability Insurance, and Machine & Equipment Insurance are some examples.
Kurnia's insurance product list gives you an idea of what's available in the market.
General Insurance Companies
Malaysia has 25 general insurance and reinsurance companies, according to the General Insurance Association of Malaysia (PIAM).
Bank Negara Malaysia regulates the general insurance industry under the Ministry of Finance. The industry is governed by the Financial Services Act 2013.
A policyholder pays a periodic premium to the insurer to get protection from an uncertain future event. And it's the job of insurance companies to manage risk for customers through insurance contracts known as insurance policies.
Insurance Intermediaries
An insurance intermediary is a middle person who helps connect insurance buyers with insurance carriers. In other words, they help you find the right insurance policy to meet your needs from the vast array of options.
Think of it this way: when you're buying a car, you have many options. Knowing which is right for you can be challenging unless you're a car expert. That's where car salespersons come in. They will ask you about what you're looking for in a car and then show you some options that fit your criteria.
The same goes for insurance intermediaries. They will ask you about your needs and then show you some policies that fit them.
There are two main types of insurance intermediaries:
Insurance Agents
Agents represent insurance companies and do business on their behalf. They can sell insurance policies, collect premiums, and issue cover notes
Insurance agents also help clients file claims with their insurers if needed.
If you're interested in becoming a general insurance agent in Malaysia, you can apply to any available insurance company. The insurance company you choose will help you get qualifications and approval.
Insurance Brokers
Brokers act as full-time professional intermediaries between insurance companies and buyers (policyholders). The difference between agents and brokers is that agents represent insurance companies, while brokers represent their clients.
They must be licensed by Bank Negara Malaysia and registered with The Malaysian Insurance and Takaful Brokers Association (MITBA). Their job is to represent their clients and get them the right insurance. They will also help clients negotiate with insurance companies to get the best deal. Brokers also help their clients file claims with insurance companies, just like insurance agents do.
Purchasing General Insurance Products
Choosing a general insurance policy requires awareness of the different aspects.
Consider the policy's scope first. What risks are covered? Is it comprehensive enough to cover your concerns?
Also, look at the exclusions. There are situations where insurers won't provide coverage. Understand what is and isn't covered before choosing a policy.
Finally, it would help if you looked at the premium, which is the amount you'll be paying. Before you purchase a policy, make sure the premium fits your budget.
Knowing the standard insurance terms is also helpful in understanding your policy.
You can use this checklist to help you choose a general insurance product and learn what to do should you need any help:
- Determine what aspects and assets of your life you want to protect
- Research and compare policy coverage and terms. Read the Policy Disclosure Sheet (PDS) and the Policy Wording that tells everything you need to know about the insurance product. You can usually find these details on the insurance company's websites.
- Request a quote from your insurer. You will receive a quote that includes the premium and period of coverage.
- You will receive your cover note after making the payment. This cover note verifies your insurance coverage until your policy arrives. Cover notes usually list the insured, the insurer, the coverage, and what is covered.
- The coverage that you have with your insurance company may allow you to file a claim should an accident happen or something go wrong. Read the company's claims process, which you can find on their website.
The Next Step
Purchasing general insurance is affordable, and the added benefit of having a worry-free life is priceless.
Purchasing a policy should also be a straightforward process.
At Kurnia, purchasing a general insurance policy is a simple process. Our website offers an easy and convenient way to compare all the available products. You can buy online, from our agents, or walk into our branches nationwide.
Disclaimer: This blog post is strictly for informational purposes, and should not be taken as advice of any kind. Kurnia disclaims all responsibility for any losses resulting from reliance on the information contained in this article.