Having taken your beloved new vehicle home after all the hard effort, many owners would rush to open their wallets again to add more features to it, and upgrade the vehicle inside out, while trying to save as much as they can on other areas, one of them being car insurance.
Hong Kong laws only require owners to obtain third party coverage, which is why comprehensive coverage is where owners would start to save money on. What many owners do not know, however, is the fact that a real comprehensive coverage covers areas beyond your imagination, and can help protect your vehicle and yourself. Let’s unpack and debunk four biggest myths about comprehensive motor insurance.
Myth no. 1: You can save money by only buying third party coverage?
When your new vehicle hits the road, you are usually only focusing at the cost of comprehensive coverage which is a great more than third party coverage schemes. As the government does not make it mandatory, many owners would think comprehensive coverage is impractical and therefore choose not to buy them, unless you have a car loan deal. However, even your vehicle is a used vehicle that is worth only tens of thousands of dollars, you would be ‘losing out big only to gain a little’ because of your unnecessarily cost-saving attitude.
First, third party coverage plans only protect against third party losses caused by accidents. But don’t forget during the traffic accidents happen, your vehicles might still suffer damages, and if you don’t have a full, comprehensive protection, you might end up having to pay for the repair out of your own pocket. Replacing basic equipment such as bumpers and light covers can cost at least thousands for each item, while a damaged door and trunk would likely involve six-digit costs to repair.
You might say you have driven for many years with a lot of experience, and have never been involved in accidents on the road, and so just a third party coverage to fulfil your legal duty is good enough. But no matter how confident you are about your driving skills, accidents are accidents and can never be foreseen. Even if they don’t involve a third party, and however careful you drive your vehicle, there is still a chance of things going wrong.
Moreover, have you ever thought of the more serious accidents? Misjudging the depth of a pothole during rainy days, the engine breaking down and getting soaked with water, or having your windshield damaged by falling objects when you have your vehicle parked on the street, are all common events that lead to claims. Even more worrying are problems you have not envisaged at the time of buying, which can result in repair costs in their thousands at least, or having your vehicle forsaken in the most severe scenario. If you only have third party coverage, you will then have to shoulder all the repair expenses or the cost of buying a new vehicle all by yourself. On the contrary, if you have a comprehensive coverage, you have fewer of these headaches.
Myth no. 2: Past claims would increase insurance costs in the following year?
There is a clause in car insurance known as ‘No Claim Bonus/ Discount’, or NCD/NCB in short, that means if a policy holder has not made any claims for accidents in the past year, he can then enjoy a discount in the premium he pays next year, which can amount to as much as 60%. Conversely, if you have filed claims before, insurance companies might then re-evaluate their risk assessments in the following year, and increase your premium and deduct the discounts you have accumulated previously.
Because of this mechanism, some owners would want to maintain a ‘no claim bonus/discount’ record, and unless they run into major accidents, they would rather not file a claim for compensation in order to avoid getting back thousands of dollars for minor accidents, but risking tens of thousands more in premium for the next year. Precisely because of that, some people would have an illusion of ‘whether it is worth buying comprehensive coverage if they won’t make claims even for accidents’, and think comprehensive coverage plans are useless.
In fact, this is an outdated notion. There are many contracts out there now that include a provision in the ‘No claim bonus/ discount’ clause in comprehensive coverage, that stipulates if the annual claim amount does not exceed HKD60,000 or 20% of the market value of the vehicle, the policy holders would continue to enjoy their ‘No claim bonus/ discount’, therefore sparing vehicle owners the dilemma of having to ‘cut their nose off to spike their face’.
Myth no. 3: Even with comprehensive coverage, you still have to pay high excess in accidents?
It is indeed true that various comprehensive coverage in the market do require owners to pay for part of the compensation, also called excess, which is why many owners hold the mistaken belief that comprehensive coverage is not worth buying as ‘they still need to pay out of their own pocket in case of accidents’.
But if you have done your homework before getting insurance, and understand well the calculation method for excess under your coverage plan, you will find that some excesses are not as expensive as you may have thought. Rather, it allows you to have a more holistic protection of your beloved vehicle for a reasonable price. Some excesses in the market are as low as HKD 5,000, while some items such as a broken windshield caused by accidents would even be exempted from the excess clause and be covered for a free renewal under a certain price.
Myth no. 4: Save as you can, comprehensive coverage with no other named drivers?
When you buy car insurance and fill out the enrollment forms, you will have noticed a question there: are there any other named drivers for the vehicle apart from the owner?
Many owners, in order to save money, would not include their family or friends as named drivers even though they may often lend the vehicle to them. Also, newly licensed drivers with less than two years of driving experience, or drivers under the age of 25, usually have to pay for a higher premium or excess, which is why many young drivers tend to ask the older members of their family to be the policy holder, and not include their own name on it.
However, when you lend your vehicle to family or friends who get into an accident, and therefore have to give compensation or pay for excess, they would have to pay as unnamed drivers, the cost is much more than named drivers. Also, it would be for the owner, i.e. you, to be responsible for the ‘no claim bonus / discount’ record, which may be affected and result in greater losses in the end.
Therefore, a comprehensive coverage plan and a clear knowledge of all its contents are what it takes to guarantee a smooth operation of the road and steer you away from major losses. For more information on comprehensive coverage? Please click here: https://car.axa.com.hk/
The above content is reviewed by Kenneth Lai - P&C Distribution Director of AXA Hong Kong and Macau.
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