Agreed Value, Excess and NCD: Car Insurance Jargon Made Simple

Quick answer:

Three terms decide how much you receive, or pay, on claim day.

Agreed value and indemnity value (the car's market value at the time of loss) decide your payout if your car is stolen or total loss, and indemnity value carries a real risk of being underinsured.

Excess is the first amount you pay on a claim.

NCD is the discount you earn for claim-free years.

Knowing them at policy review means no surprises at the workshop.

Who drives your car matters. It can change what you pay when you claim.

1. 1Agreed Value vs Indemnity Value
   1. 1.1Which Cars Usually Fall Under Indemnity Value?
   2. 1.2Total Loss Example: Honda Civic, RM150,000
   3. 1.3My Pick: Agreed Value, Especially With a Car Loan
2. 2Excess vs Compulsory Excess
   1. 2.1Types of Excess
   2. 2.2Why Do Insurers Impose an Excess?
   3. 2.3Excess Claim Example
3. 3How Does NCD (No Claim Discount) Work?
4. 4Not Sure What Your Car Policy Says?

Agreed Value vs Indemnity Value

Both apply when your car is stolen or total loss The difference is how the payout is decided.

• Sum insured: the most the insurer will pay for your own car.

• Agreed value: you get the fixed amount stated in the policy document.

• Indemnity value (Market value) : the payout is depends on current market similar car (same make, model, age and condition) costs.

Which Cars Usually Fall Under Indemnity Value?

Agreed value is not available for every car.

In my experience, these commonly fall under indemnity value:

1. older cars (around 10 to 15 years),

2. imported cars,

3. rare or modified cars, and

4. high-depreciation or discontinued models.

If your car quote is being shown indemnity value but your car does not belong to the list above, check with your agent or insurer on agreed value quote.

Total Loss Example: Honda Civic, RM150,000

Your Honda Civic's market value is RM150,000, but you set the sum insured at RM130,000 to keep the premium low. It is stolen or total loss

	Indemnity value	Agreed value
Position	13% underinsured	pay as per policy sum insured
Estimated payout	RM 113,100 (RM130,000 - 13%)	RM 150,000

Agreed value means you know the payout before anything goes wrong.

My Pick: Agreed Value, Especially With a Car Loan

I choose agreed value for peace of mind: you know the payout upfront.

It matters even more with a car loan. If your car is under hire purchase, the claim payment goes to the bank first.

Let’s continue with the Honda claim again, where the loan balance is RM130,000

	Indemnity value	Agreed value
Final claim payout	RM 113,100	RM 150,000
Loan balance	RM130,000	RM 130,000
After pays to bank	still owe RM 16,900	have extra cash of +RM20,0000

An agreed value that covers your loan helps you clear it and protects your cash flow.

Excess vs Compulsory Excess

Excess is the first amount you pay on each approved claim, even if the accident was not your fault. Check your schedule to see which one you have.

Excess is the first amount you pay on a claim, before the insurer pays the rest.

Types of Excess

Imposed by	What it is
Insurer	Excess : driver or car in high risk of claim, old or modified car Compulsory excess : unauthorized driver or young driver (under 21, holds P or L license
Self	Optional - Client opt in excess (RM500 or RM1,000) in return for a lower annual premium

Why Do Insurers Impose an Excess?

• Shared risk: when you are set to share cost during claim payment, it encourages drivers to be cautious and do their best to lower claim possibilities.

• Fewer small claims: An excess discourages tiny claims (eg. RM200 scratch), driver will self absorb the repair cost rather to go full procedure claim with insurer.

• Reasonable premiums: With lowered possibilities of claim, insurers are happy to lower down premium for excess.

Excess Claim Example

Assume your schedule shows a RM500 excess:

Scenario	Claim payable	Excess	Compulsory excess	You pay	Insurer pays
Yourself as driver	RM10,000	RM500	RM0	RM500	RM9,500
Your younger sibling that still in P license	RM10,000	RM500	RM400	RM900	RM9,100

Takeaway :

• Avoid compulsory excess by adding unnamed driver into your policy

• Every insurer has their way to evaluate how much excess to put into a policy, so this is where you can compare quote.

How Does NCD (No Claim Discount) Work?

NCD is a reward of you not having claims with insurer, by giving you increasing discount for every claim-free year.

Example of basic premium RM2,000 that stays the same each year. Real premiums vary.

Claim-free years	NCD	Discount	You pay
Year 0	0%	RM0	RM2,000
Year 1	25%	RM500	RM1,500
Year 2	30%	RM600	RM1,400
Year 3	38.33%	RM767	RM1,233
Year 4	45%	RM900	RM1,100
Year 5 and onwards	55%	RM1,100	RM900

What one claim costs you: 

at 55% NCD you pay RM900. After one claim, your NCD drops to zero, so you pay RM2,000, and start all over to accumulate the discount for 5 years.

One claim can reset your NCD to zero, so know your numbers before you claim.

Common questions about NCD

• It belongs to you, not the car. It does not transfer to a new owner.

• NCD is transferrable between cars under you name. When you buy a new car, you can transfer your old car NCD to new car to maximize premium savings.

• Not all claims lead to NCD lost. If you have a windscreen rider, your NCD is safe if there’s crack claim on it. Same goes to car accident that is not your fault.

• Your name can hold NCD for few years without a car on it. Without a car, the NCD rate willl decrease year by year even is under your name.

Related article : what is Knock-for-Knock and what happens when I have car accident?

Not Sure What Your Car Policy Says?

Send me your car details and your current policy schedule, and I will go through it with you in plain English.

Article and example are for general education only. This is not a substitute for your policy wording.