How Is Car Insurance Deductible Calculated and When Is It Payable?

'Deductible', also known as 'excess', is a pre-set amount in an insurance policy that the policyholder is required to pay to the insurer when a claim is made. For example, if the total amount of a claim is HKD $15,000, and the policy has an excess of HKD $5,000, the policyholder will then have to pay the deductible of HKD $5,000, and the remaining HKD $10,000 of the claim will be paid by the insurer.

The amount of the deductible may vary with individual insurers. Deductibles vary by insurer and also by policy. Some policies have very high deductibles, while others may have no deductible at all. Generally speaking, the higher the excess, the lower the premium, and vice versa. Therefore, when comparing different car insurance plans, the excess is also an important consideration in addition to the premium.

Hong Kong law does not set a minimum requirement for the sum insured for property damage, but most local insurers will provide third-party property coverage of HKD $2 million. Car insurance policies typically come with several deductibles, which may take effect depending on the situation or personal attributes of the insured when a claim is made.

How Is Car Insurance Deductible Calculated?

Deductibles are usually calculated in one of two ways, either by a specific amount or by a specific percentage of the compensation amount.

Continuing with the example above, let’s assume that the total claim amount is HKD $15,000, and the policy has an excess of HKD $5,000. The policyholder will have to pay the HKD $5,000 deductible, and the remaining claim amount of HKD $10,000 will be paid by the insurer. This is an example of a deductible of a specific amount.

Alternatively, if the excess is calculated based on a specific percentage of the compensation amount, and assuming that the excess is 1% of the compensation amount, the car owner will need to pay 1% of HKD $15,000, or HKD $150, and the insurer will pay the rest. However, some insurers will use both calculation methods, such as specifying the excess as 1% of the indemnity amount or HKD $5,000, whichever is higher.

7 Common Deductibles with Comprehensive Car Insurance

4 Common Deductibles with Third-party Auto Insurance

When Will You Have to Pay the Excess?

Whether you have comprehensive or third-party insurance, you must pay the excess to the insurer before making a claim.

When Should I Pay the Excess If I Have Comprehensive Insurance?

Generally speaking, if your vehicle is damaged and you have a comprehensive insurance plan, you can first go to a repair center for a quote and submit the quote along with an accident report to the insurer. The insurer will then arrange for an estimate of the repair costs, such as by appointing a claims adjuster to adjust the charges.

Once the repair costs are determined, the insurer will request payment of the deductible. Normally, deductibles are paid by check or bank transfer, after which the insurer will issue an "order for work" to get the repair work started.

When the court rules that the accident was caused by the other driver's careless or dangerous driving, your insurer will begin to recover losses (including previously paid repair costs) from the other party or their insurer, as well as recover the excess you paid. This process can take months to years, depending on how quickly the other party's insurer handles these requests.

When Should I Pay the Excess If I Have Third-party Insurance?

After an accident, you must notify your insurer in writing by filling out an accident report and other relevant documents, and then wait for the legal process to be completed (which can take months or years). If you are ultimately found to have been negligent, your insurer may receive a recovery claim from the third party and collect the third-party insurance deductible from you, typically paid by check or bank transfer. Once the deductible is received, your insurer will continue to process the third party’s claim.

Deductibles Can Be Added Up!

It should be noted that car insurance deductibles can be added up. For example, if a policy has the following excesses:

• General: HKD $5,000
• Young driver: HKD $5,000
• Inexperienced driver: HKD $5,000
• Unnamed driver: HKD $5,000

If the insured person's 18-year-old son has just got his driving license and is not named on the policy, and an accident occurs while he is driving the insured vehicle, the insured person must pay the above four deductibles amounting to HKD $20,000 before making a claim. In addition to the 'general' deductible, in this case, the insured person's son is a 'young,' 'inexperienced,' and 'unnamed' driver at the time of the accident, so all four deductibles will apply to this claim.