Insurance



I. General matters concerning all types of insurance

Besides the obligation by an insurance company to pay out after the occurrence of a specified event or accident, there are other essential elements in the formation of an insurance policy.

Speculation

Under the insurance laws of Hong Kong , speculation refers to the probability of the insured event occurring during the period the insurance policy is in force. The occurrence of such an event should be uncertain to both the insurance company and the insured person/policyholder. For example, in the case of life insurance, during the period covered by the insurance, neither party knows when the insured person will die.

Risk and Premium

The insurance company should decide whether or not to accept to insure against the risks of speculation for a particular event. If an insurance policy is granted, the insurance company would set out the terms and conditions of the policy, and charge a premium (an amount to be paid by the insured person for buying such insurance) commensurate with and in recompense for the risks assessed.

Utmost good faith

It is a fundamental principle of insurance law that the parties to the contract deal with each other in utmost good faith. The requirement to deal in utmost good faith is reciprocal between the parties involved.

The following may help illustrate the responsibility of utmost good faith on the part of the insured person. All the facts and the circumstances surrounding the subject item of the insurance desired would be known to the insured person only. The insurance company relies on the disclosures and representations made by the insured person (i.e. information given by the insured person). Therefore, any one who wishes to purchase insurance is required to be honest and make full disclosure of all pertinent facts and circumstances so that the insurance company is fully informed of all the risks involved.

Other requirements

An insurance policy is a kind of contract. Therefore, the usual elements for making commercial contracts (including "offer" and "acceptance") also apply to insurance contracts.

1. What is "insurable interest"?

The party purchasing the insurance must have an "insurable interest" in the insured item/person. Otherwise, the purchaser or other interested party (e.g. the beneficiary) will not be able to enforce a claim under the insurance policy.

The Insurance Claims Complaints Bureau has provided a simple definition of insurable interest for our reference: "A person is regarded as having an insurable interest in something when the loss or damage to the item concerned (the insured item) would cause that person to suffer a financial loss and/or other kinds of loss."

A mere expectation of acquiring an interest in a particular thing will not give rise to an insurable interest. However, provided that an interest is confirmed (e.g. the insured person has entered into a contract and has acquired a future interest in certain goods) , that person would have an insurable interest in the subject goods even if he/she has no present enjoyment or possession of the goods.

Examples

In the case of life insurance, the party wishing to purchase the insurance covering another person's life must suffer a loss (either emotional or financial) if the insured person dies. As regards emotional loss, the loss must arise from marriage or the love and affection between a close blood relationship or such other close relationship that could reasonably give rise to love and affection.

If there were no requirement for "insurable interest", then the party purchasing the life insurance could simply be making a wager (gambling) on the life of an insured person who does not have any relationship with the insurance purchaser. Another possibility could be that the party purchasing the life insurance could have sinister motives (e.g. to kill the insured person immediately after buying the insurance and then claim the death benefit).

In the case of most property insurance, the subject item of the insurance is a physical object exposed to the risks of loss or damage. The insurable interest arises from the connection between the party purchasing the insurance and the subject item. The insurance purchaser stands to suffer a loss if the subject item is lost or damaged. For example, if a car is stolen, the car owner would suffer a loss.

2. The insured persons or policyholders might sometimes fail to disclose all their personal information to the insurance company. Will such a non-disclosure lead to the rejection of claims? What important facts must be disclosed?

It should be noted that n ot all kinds of personal information are required to be disclosed. The policyholder is only required to disclose personal information that is relevant and important for the insurance company to assess the risks of the proposed insurance coverage. From the insurance company's assessment, a particular risk profile of the proposed insured person is derived. Based on the assessed risk profile, the insurance company sets the terms and conditions and the rate of premium for underwriting the proposed insurance coverage.

An important non-disclosure occurs when the policyholder conceals or fails to disclose known facts that are relevant to the insurance required. For the insurance company to reject a claim, the non-disclosure must be important . That is to say, if the fact or facts are known and factored into the assessment, the resulting risk profile would have been substantially higher, which might have resulted in a higher premium being charged or the rejection of insurance application. Furthermore, the undisclosed facts must be facts that the policyholder could reasonably be expected to know and disclose.

For example, a claim may be rejected if the policyholder did not disclose that the insured person has a heart condition that was serious enough that if this fact had been disclosed, the insurance company would have set a much higher rate of premium or even rejected the application.

If there is uncertainty as to whether or not to disclose a particular piece of information to the insurance company , it is recommended that such information be disclosed to the company in order to avert any future dispute or rejection of claim.

3. Further to the question above, if a piece of non-disclosed information is not related to a particular claim (e.g. I submit a claim due to an injury from playing football, but I had not previously mentioned my smoking habit), can the insurance company still reject such claim?

Following the answer to Question 2, the legal issues are whether the non-disclosure of the smoking habit was an important non-disclosure during the insurance application, and whether this is a fact that the applicant could have been reasonably expected to disclose?

If your smoking habit was an important fact, (the policy application asked if you smoked) and you did not disclose the fact that you were a smoker, you would have prejudiced the insurance company's position right from the start. Your insurance policy may be voidable (i.e. the insurance company is entitled to terminate the insurance policy and to avoid the contractual liability). Consequently, irrespective of how the claim arose (e.g. due to an accident or a third party's fault) , the insurance company may be entitled to avoid the policy and reject your claim.

From a layman's point of view, a non-disclosed fact may be totally unrelated to the disease or injury the insured person suffers and you may therefore question the rationale of declining a claim based on non-disclosure. In fact, it should be noted that if the non-disclosed information is vital enough to have affected the underwriting decision of the insurance company, it may be legitimate for the company to decline a claim even though the non-disclosed information is not related to the current disease or injury.

The disputes settled by the Insurance Claims Complaints Bureau show that the drinking or smoking habit of the insured person is an important factor in the assessment of the risks in life or health insurance by the insurance company. So, such factors (drinking or smoking habit) should be disclosed in advance.

4. What are the usual "exclusion clauses" (insurance coverage or claims to be excluded) in an insurance policy?

There are usually some "exclusion" clauses in an insurance policy under which the insurance company would not be liable for the losses resulting from the specified events.

The exclusion clauses remove the insurance coverage for the specified events that the insurance company chooses not to insure. The relevant reasons might be: such coverage is available under another class of insurance, the risks are not suitable to be taken up, or some special conditions are required, etc.

There are different types of exclusions for different types of insurance. An exclusion clause may apply generally in respect of the whole insurance policy, or may only apply to specific sections of the policy. In certain circumstances, an exclusion clause may be limited or removed by paying an additional premium.

The following are some examples of exclusions in respect of certain types of insurance.

Life insurance : the insured person commits suicide within the first two years after the policy is issued of; certain activities considered to be dangerous such as flying other than with a regular scheduled airline, hang-gliding, motor-car racing , s cuba- diving or skydiving ; and war exclusions.

Medical and hospitalization insurance : self-inflicted injury or suicide; pregnancy and childbirth; existing illness or disease prior to the insurance being effected; AIDS or AIDS Related Complex; intoxication by alcohol, narcotics or drugs not prescribed by a registered medical practitioner; and injury, sickness or accident sustained or medical treatment received outside of Hong Kong.

Property insurance : war; acts of terrorism; flooding; pressure waves caused by aircraft or other aerial devices travelling at super-sonic speeds; radiation from nuclear fuel or combustion of nuclear fuel; asbestos and pollution or contamination; and fines, penalty, punitive or exemplary expense.

Motor vehicle insurance : modified vehicle; where reasonable care was not taken to protect the vehicle; operation of the vehicle not within the law; use of the vehicle other than for the declared or specified purpose; driving while under the influence of alcohol, narcotics or illegal drugs; unlicensed driver; excess load; unlawful purpose; and unsafe condition of the vehicle.

(Note: The above items are examples only. You should carefully check all the actual exclusion clauses written on your particular insurance policies.)

5. I paid the premium one week late (or one month late). Is my policy still valid? Will the insurance company deny my claim if an accident happened immediately before my premium payment?

There should be a "grace period" clause, which is another important contractual provision in the insurance policy.

Typically the "grace period" provides for a grace of 30 or 31 calendar days (depending on the terms actually written on the policy) to pay an overdue premium. The policy remains in force during the grace period. Thus, if a claim were made within the grace period, the insurance company is liable to pay the claim but the company has the right to deduct the amount of the overdue premium from the proceeds of the payment of the claim.

In the example above, the insurance company would be obligated to pay your claim.

6. The insurance company has delayed processing my claim. Can I claim interest due to such a delay?

If there is an expressed provision in the insurance policy providing for payment of interest by the insurance company for having delayed the payment of a claim, a demand for payment of interest would be self-operating, provided that you have not breached any terms in your policy.

However, the standard clauses of an insurance policy usually do not provide for payment of interest by the insurance company for late payment of a claim.

If it can be shown that there was an undue/improper delay on the part of the insurance company, a complaint can either be lodged with The Hong Kong Federation of Insurers ("HKFI") or The Insurance Claims Complaints Bureau (the "ICCB") to recover interest for the delay.

Under the Code of Conduct for Insurers of the HKFI (the "Insurers' Code"), Part III, Claims:

  • Paragraph 22 requires the insurer (insurance company) to handle all claims efficiently, speedily and fairly;
  • Paragraph 27 requires the insurer to promptly consider and determine the claim once all the required information has been submitted; and,
  • Paragraph 30 requires the insurer to make payment as soon as practicable once the claim is admitted.

7. I have taken out several insurance policies covering the same risk (e.g. hospital confinement or household damage). Can I claim for the sum insured under ALL policies or just the actual expenses/losses only? Is the claim for the death benefit under life insurance subject to different rules?

An insured person is not prevented by the law from purchasing any number of insurance policies covering the same item/person for the same risk.

However, there is normally an "other insurance" clause in the insurance policy that requires disclosure by the insured person of all the other insurance taken out. The "other insurance" must cover the same risk, the insurance coverage is additional, and the relevant policies are valid and subsisting.

Typically, the clause may set out the liability of the insurance company where the insured person has also purchased "other insurance", which could be categorised as follows :

  • The "escape" provision whereby the insurance company will have no liability on the insured item/person in which the insured person has purchased other insurance;
  • The "excess" provision whereby the insurance company will be liable for the amount of the excess insurance over and above the "other insurance" only; and,
  • The "pro-rata" provision whereby the insurance company's liability will be limited to a proportion of the loss.

The above is the position as regards medical, personal injury and property insurance .

The provisions above intend to prevent the insured person from unfair enrichment under the Common Law. In other words, the total amount of the claims payable under the "primary insurance" (the subject policy) together with the "other insurance" (the other policies) should not exceed the fair value of the repair or replacement of the insured item (i.e. the total loss or all the expenses incurred).

Accordingly, you may claim under all of the policies. Depending on the terms of all your policies, your claims may be adjusted according to the express provisions under the "other insurance" clause in the way that the total payment will not exceed fair compensation for your loss. Example : You have taken out two medical insurance policies in which the sum insured for medical expenses is $10,000 for each policy (aggregate sum insured is $20,000). If your medical bill is $15,000, you can only obtain $10,000 from one of the policies and get $5,000 from the other one.

The position as regards life insurance policy is different. Here, if there is nothing untoward (e.g. fraud or misrepresentation), the insurance company will be liable to pay in full regardless of there being other policies under which claims could also be made.

8. There are two types of insurance intermediary, namely "insurance agent" and "insurance broker". What are the differences in their roles/functions and qualifications? Are they required to be registered before performing their work?

Most people have their insurance matters dealt with through an insurance agent or broker.

Acting on behalf of the general public, insurance agents and brokers advise and arrange the purchasing of insurance. They also prepare reports, keep records and in the event of a loss, help the policy holders to submit and settle a claim.

Insurance agents

There are two types of insurance agents: independent agents and employed agents.

Independent agents are self-employed and represent insurance companies and earn a commission on the policies that they help to write. In Hong Kong, independent agents are restricted to representing no more than four insurance companies. No more than two of them can be life insurance companies.

On the other hand, there are employed agents who work exclusively for one insurance company. In addition to being paid a basic salary, they also earn commission on the business that they bring in.

Insurance agents are required to be registered with and supervised by the Insurance Agents Registration Board under the Hong Kong Federation of Insurers ("HKFI") in accordance with the Code of Practice for the Administration of Insurance Agents. To check the identity of a registered insurance agent, you may visit the HKFI's webpage.

To be registered, insurance agents are required to pass the Insurance Intermediaries Qualifying Examination conducted by the Vocational Training Council, unless they are exempt. To ensure professional standards, they are also required to attend continuing professional development programmes as a condition for the renewal of their registration.

Insurance brokers

An insurance broker exclusively represents the insured person (but not the insurance company). On behalf of the insured person, the broker searches insurance companies for the best available coverage suitable to the needs of the insured person. Usually, this type of insurance relates to commercial activities, the coverage is specialised, and the insurance is for a large amount.

A broker might be a company or a person, working on a commission basis.

An insurance broker must be authorised by the Office of the Commissioner of Insurance or either one of the two industry bodies, The Hong Kong Confederation of Insurance Brokers or the Professional Insurance Brokers Association .

A broker must meet the minimum requirements set out in Sections 69(2) and 70(2) of the Insurance Companies Ordinance (Cap. 41 of the Laws of Hong Kong), the most important of which are:

  • having a minimum capital and a minimum net asset value;
  • meeting certain minimum qualifications and experience (where the broker is a company, it is the chief executive who has to qualify);
  • having professional indemnity insurance; and,
  • keeping proper books and accounts and separate accounts for each client.

In addition, the broker himself or herself, or the representatives of a broking company, must also be registered with the authorising body and have passed the qualifying examination, unless exempted, and be required to attend professional development programmes.

Lastly, a person or company is not permitted to act as an agent and a broker at the same time.

9. I am not satisfied with the compensation and the conduct of my agent/insurance company. Shall I settle the dispute in court, or approach other organizations? Do the courts or other organizations impose a limit on the amount of any claim in each case?

Under the Code of Conduct for Insurers (Part IV: Management of Insurance Agents, Paragraph 35), an insurance company is required to have internal procedures for handling complaints against its agents. Therefore, you should file the complaint against your agent with your insurance company first.

If you are not satisfied with the way on how your insurance company handled your complaint against the agent, you should then file your complaint with the Insurance Agents Registration Board (IARB) of the Hong Kong Federation of Insurers. This body is responsible for administering the agents' code of conduct.

As regards the complaint against your insurance company, you should also file the complaint with the company first. The Code of Conduct for Insurers (Part VII: Inquiries, Complaints and Disputes, Paragraph 48) requires insurance companies to have procedures in place to handle and attempt to resolve complaints by policyholders.

If your complaints relate to a claims dispute , you could, at the same time, file a complaint with the The Insurance Claims Complaints Bureau (ICCB). This body is set up specifically to handle claims disputes in an expedient and less costly way .

There is no limit as to the number or the value of complaints you can file with IARB or the ICCB.

In relation to court proceedings, you may go to the following courts:

Taking your claim to any of the above courts should always be the last resort. You are recommended to seek legal advice before doing so.

10. My agent made some false statements which induced me to buy insurance from him. Can I terminate the policy and ask for a refund of the premiums?

An insurance agent shall not, with the aim of concluding the deal with you, make any inaccurate or misleading statements about his/her insurance company or the policies issued by the company.

As the agents' employers, the insurance companies are also vicariously liable for the acts of their agents. Furthermore, under the Code of Conduct for Insurers (Part IV: Management of Insurance Agents, Paragraph 34), insurers should not exclude or limit their liability for the actions of their agents acting in the course of their agency.

Previously, we discussed the legal principle of the parties having to deal in utmost good faith. In the example in question, the insurance company through its agent has acted in bad faith. This fact gives you the right to avoid the policy (i.e. you can cancel the policy and ask for a refund of the premiums that you have paid).

11. My agent asks me to pay him cash so that he can pay my premiums promptly on behalf of me. Is he allowed to handle premium payments in this way?

Under the Guidance Note issued on 1 June 1999 attaching to The Code of Practice for the Administration of Insurance Agents issued by The Hong Kong Federation of Insurers, an insurance company must set out clear rules on any payments from customers which are not in the form of cheques, credit card payments, direct deposits or bank transfers.

The Guidance Note is to ensure that in a situation like yours where there is cash involved in the payment, your agent has to comply with the rules that will avoid the mixing of your money with that of his personal funds. Note that more than one-third of the complaints handled by the Insurance Agents Registration Board is about improper handling of insurance premiums by agents.

Thus, your agent is allowed to handle cash payments, provided that his principal/superior has set out clear rules that he has to follow. To be on the safe side, you should check the rules and satisfy yourself that your agent will act accordingly.



II. Life and medical/health insurance

Life insurance is used to provide a cash sum on the death of an individual (i.e. the insured person). Apart from this type of coverage, other types of protection can also be included as supplements to a life insurance policy, e.g. against a critical illness or disability. These protections may also be combined with a savings option in the same policy. Some of the major types of life insurance are summarized as follows:

Term Life

A "Term Life" policy pays a lump sum (also called "death benefit") only upon the death of the policyholder/the insured person. It does not provide dividends. Term policies are of a fixed duration, for example 10 or 20 years. If no claim is made, the policy will cease after this time.

Whole Life

A "Whole Life" policy can provide a cash value for the policyholder during his/her lifetime, or provide a lump sum plus dividends to the policyholder's beneficiary upon the death of the policyholder. Premiums are usually paid to the insurance company at regular intervals, and the premiums are then invested by the company to generate dividends for the policy. It performs savings as well as protection functions.

Endowment

An "Endowment" policy pays out a lump sum upon reaching an agreed date (irrespective of whether the policyholder has died or not), and thus providing a savings function for the policyholder. It also pays a death benefit should the policyholder die before the agreed date, and thus providing a protection function as well.

1. What is meant by a "cooling-off period"? If I have just purchased a life insurance policy but have second thoughts a few days later, can I cancel this policy?

In Hong Kong, for the protection of consumers' interests, a person purchasing a long-term insurance policy (mostly life insurance) is given a cooling-off period to review the terms and conditions of the policy within a reasonable period of time after the purchase.

If the insurance purchaser wants to withdraw within the cooling-off period, he/she has the right to cancel the insurance policy and obtain a full refund of the insurance premium, subject to the market value adjustment (if applicable).

The cooling-off period is 21 days after the delivery of the policy or issue of a Notice (see below) to the policyholder or the policyholder's representative, whichever is the earlier.

The Notice should inform the policyholder of the availability of the policy and the expiry date of the Cooling-off Period.  The Notice should remind the policyholder that he/she has the right to re-think his/her decision to purchase the life insurance product and to obtain a refund of premium paid if the policy is cancelled within the Cooling-off Period.  The Notice should also remind the policyholder to contact the Customer Service Department of the insurer directly (service hotline number should be provided) if he/she does not receive the policy contract within 9 days from the issue date of the Notice.

In all cases, insurance agents are bound to inform their clients about the "cooling-off period" and the right to cancel within that period.

2. My insurance agent asked me to transfer my existing life policy to another insurance company. Are there any potential losses arising from such a transfer?

Prior to switching your life insurance policy to another insurance company, you should be careful that your agent is not making inaccurate or misleading statements or comparisons to persuade you to switch. This is not uncommon as your agent could earn a commission from your switching to another insurance company (where the agent is also switching to a new insurance company).

There are two primary matters you must carefully consider.

Firstly, in connection with your application for the new insurance, you will be required to answer questions about your health, occupation and lifestyle. If the new insurance company rejects your application because of any of the updated information disclosed in the course of answering questions, you will be required to inform your existing insurance company of the rejection and the reason(s) under the "change of circumstances" clause (if any) in your existing policy. This may lead to your existing insurance company canceling your policy or requiring you to pay a higher premium.

Secondly, bear in mind that the new policy may contain different provisions and that the "contestable period" under the new policy may start afresh. The worst case is the possibility of a claim being rejected under the new policy which would otherwise have been paid under the existing policy.

In order to protect consumers against the above risks, there is a requirement for them to complete the Customer Protection Declaration Form (the "CPD Form", which can be downloaded from the website of the Hong Kong Federation of Insurers for reference). Where there is a switching or replacement of a policy, the insurance agent must declare on the CPD Form that he/she has fully explained the risks that would be involved to the client. T he client must also declare that he/she understands the risks concerned . In this case, the cooling-off period is 14 days from the date a copy of the CPD Form is delivered to the existing insurance company by the new insurance company.

In summary, make sure that your insurance agent is not making inaccurate or misleading statements or comparisons to persuade you to switch. Any additional genuine and legitimate benefit available under the new policy may make it worth switching, but you must be clear of the potential risks and what could be done to manage these risks.

3. What is meant by a "contestable period" in relation to life insurance?

A "contestable period" is a contractual provision that is often found in a life insurance policy. The contestable period usually covers a period of one or two years from the effective date the insurance policy, depending on the terms actually written on the policy.

Through this provision, the insurance company has the right to contest (to dispute) the validity of the insurance policy and to refuse to pay the death benefit if the insured person dies within the contestable period. The most common reasons are suicide or misrepresentation of the health of the insured person.

Within the contestable period, the insurance company has the opportunity to investigate whether or not a vital misrepresentation has been made. However, after the expiration of the contestable period, the beneficiary of the insurance policy is protected against the contesting of the insurance company (i.e. the policy becomes "incontestable"). In other words, the insurance company will be obligated to pay the death benefit once the contestable period has expired, except where there is fraud (e.g. submitting fake documents during the insurance application or claim process).

Please note that the "contestable period" provision may not apply to supplementary benefits, such as payment of medical or hospital confinement expenses. In addition, life policies can be without any "contestable period" clause at all.

4. What is the effect of a "suicide clause" in a life insurance policy? Other than on life insurance, what is the impact of this clause on medical/health insurance if the policyholder has tried to commit suicide, but only injured himself?

Under the "contestable period" clause, which is usually in force for one or two years, the insurance company can deny the claim where the insured person has committed suicide.

In the case of medical/health insurance, as discussed under the subject of the "exclusion" clause, suicide and self-inflicted injury are excluded from the coverage. Therefore, where the insured person has committed suicide or has injured himself in the course of attempting to commit suicide, a claim for insurance under the policy would not be accepted.

5. The insurance company appointed a doctor for my medical check-up before approving my insurance application. That doctor failed to discover a health problem that I did not disclose. Can the insurance company use this non-disclosure to deny any claims I may subsequently make under the insurance policy?

Under the principle of utmost good faith, the insured person or the policyholder has the duty to disclose all the information relating to the purchase of insurance to the insurance company.

Consequently, irrespective of there having been a medical examination conducted by a doctor appointed by the insurance company who failed to diagnose the health problem, that insurance company may still deny your claim. This is particularly so if your non-disclosure is important, and has affected the assessment of your risk profile by the insurance company.

6. What are the differences between a "revocable beneficiary" and an "irrevocable beneficiary"? Under what circumstances can I change an irrevocable beneficiary in my life insurance policy?

A beneficiary in a life insurance policy is the person(s) who will receive the money (death benefit) from the insurance company upon the death of the insured person. There is a "Beneficiary Designation" section in life policies in which the policyholder names the party or parties as the beneficiary or beneficiaries who will receive the proceeds of the death benefit.

A revocable beneficiary designation gives the policyholder the right to change the beneficiary without the consent of the named beneficiary.

An irrevocable beneficiary designation does not give the above right. That is to say, the consent of the named beneficiary must be obtained before the policyholder can change the beneficiary.

According to the subject question, the policyholder can only change the beneficiary if the named irrevocable beneficiary shown on the policy consents to the proposed change.

7. My son is now 15 years old. Can I name him as the beneficiary in my life insurance policy? Would he be entitled to receive all the proceeds if I die before he reaches the age of majority (i.e. the age of 18)?

Yes, you can name your son (who is a minor) as the beneficiary of your life policy.

You should arrange to name a guardian and/or trustee to receive and manage the proceeds on his behalf until he reaches the age of majority after which he can inherit all the proceeds directly.

8. The insured person has disappeared for several years. Can the beneficiary submit a claim for the death benefit under the relevant life insurance policy?

Firstly, if the beneficiary is in a legal position to do so (e.g. he/she is the spouse, parent or child of the insured person), that beneficiary must obtain a court declaration that the insured person is legally dead. At Common Law, a person is considered legally dead if that person has disappeared for 7 years or more, unless there is any evidence to the contrary.

Once the court issues a declaration that the insured person is legally dead, the beneficiary can submit a claim to the insurance company for the death benefit. Regarding the details on how to apply for a court declaration, please consult a solicitor.

9. Will medical reports issued by traditional Chinese medical practitioners be accepted by an insurance company when processing claims?

There is usually a standard provision in an insurance policy that medical reports are those issued by a registered medical practitioner of western medicine.

Thus, unless the policy specifically admits medical reports issued by registered Chinese medical practitioners, such reports will not normally be accepted for the purpose of claims.

As far as the insurance industry is concerned, Chinese herbalists or doctors specialized in Chinese medicine are not commonly recognized.

10. I took out an insurance policy in Hong Kong but I was injured in a foreign country. Will this affect my claim?

That would depend on the coverage of your insurance policy. If the coverage includes events happened in a foreign country, then your claim made in Hong Kong will still be admitted.

11. Can a person under 18 years of age purchase a life insurance policy?

The rule under the law is that a minor (a person under the majority age of 18), usually cannot make contracts. An exception to this rule is that if the contractual goods or services are considered as "necessaries" for the minor, such contract is legally binding (please refer to the topic of Consumer Complaints).

If the insurance contract is beneficial to the minor, the contract may be upheld by the Court. In practice, when a minor submits an application for buying life insurance, the insurance company may first assess the income of that minor (i.e. whether or not he/she can pay the premiums).

You should also note that a minor can be named as the "beneficiary" in a life insurance policy (please refer to the relevant question and answer).

12. If my insurance policy has lapsed and I try to "reinstate" my policy by paying the premiums again, can I submit any claims to the insurance company at this stage?

Normally, there is a "reinstatement" clause by which a life insurance policy that has lapsed (usually due to non-payment of premiums) can be reinstated. The policy can be brought back into force again even though the policy was no longer in force.

It will usually be less expensive to reinstate a policy than to purchase a new one. The premium for a new policy would likely be more expensive due to the fact that the insured person is older. Therefore, the person's risk profile would likely fall into a higher premium category.

The "reinstatement" clause usually permits the policyholder to reinstate the policy , provided that certain conditions are met with, for example:

  • The insured person shows to the insurance company evidence of insurability (e.g. a satisfactory medical report). This condition is usually waived for lapses of less than two months;
  • All the overdue premiums plus any interest payable are all paid up-to-date;
  • Any policy loan (derived from the cash value of the policy) taken out must be either repaid or reinstated;
  • The policy has not been surrendered to the insurance company in return for cash; and,
  • The period lapsed must not be more than three years.

During the time in which the reinstatement of the policy is being processed, any claim submitted would be held pending the approval of the reinstatement application by the insurance company.

13. I have taken out several insurance policies covering the same risk (e.g. hospital confinement or household damage). Can I claim for the sum insured under ALL policies or just the actual expenses/losses only? Is the claim for the death benefit under life insurance subject to different rules?

An insured person is not prevented by the law from purchasing any number of insurance policies covering the same item/person for the same risk.

However, there is normally an "other insurance" clause in the insurance policy that requires disclosure by the insured person of all the other insurance taken out. The "other insurance" must cover the same risk, the insurance coverage is additional, and the relevant policies are valid and subsisting.

Typically, the clause may set out the liability of the insurance company where the insured person has also purchased "other insurance", which could be categorised as follows :

  • The "escape" provision whereby the insurance company will have no liability on the insured item/person in which the insured person has purchased other insurance;
  • The "excess" provision whereby the insurance company will be liable for the amount of the excess insurance over and above the "other insurance" only; and,
  • The "pro-rata" provision whereby the insurance company's liability will be limited to a proportion of the loss.

The above is the position as regards medical, personal injury and property insurance .

The provisions above intend to prevent the insured person from unfair enrichment under the Common Law. In other words, the total amount of the claims payable under the "primary insurance" (the subject policy) together with the "other insurance" (the other policies) should not exceed the fair value of the repair or replacement of the insured item (i.e. the total loss or all the expenses incurred).

Accordingly, you may claim under all of the policies. Depending on the terms of all your policies, your claims may be adjusted according to the express provisions under the "other insurance" clause in the way that the total payment will not exceed fair compensation for your loss. Example: You have taken out two medical insurance policies in which the sum insured for medical expenses is $10,000 for each policy (aggregate sum insured is $20,000). If your medical bill is $15,000, you can only obtain $10,000 from one of the policies and get $5,000 from the other one.

The position as regards life insurance policy is different. Here, if there is nothing untoward (e.g. fraud or misrepresentation), the insurance company will be liable to pay in full regardless of there being other policies under which claims could also be made.



III. Accident or personal injury insurance

Accidents do happen all the time and may result in personal injury or even death. An accident insurance policy gives protection (such as reimbursement of medical expenses) should the policyholder suffer accidental death or bodily injury.

1. What is the general meaning of "accidental injury"? If I was injured but did not have a visible bruise or wound, can I still submit a claim for such an injury?

An accidental injury is a mishap that is unusual, fortuitous, unexpected or unforeseen resulting in damage or injury to the body.

The admission of a claim is based on medical certification by a licensed medical practitioner. Therefore, if your doctor, who is qualified, has certified that you have sustained an accidental injury, then regardless of whether or not there is a visible mark of your injury, your insurance company is bound to admit your claim based on the medical certificate.

2. What are the general meanings of "permanent disability" and "temporary disability"? I received a lump sum from an insurance company due to a permanent disability but surprisingly recovered two years later. Can the insurance company ask me to refund part of its previous payment?

A disability, in the context of injuries, refers to the inability to carry on with one's normal activities and occupation as a result of sickness or accident.

"Permanent disability" is a disability that the insured person will not recover from. "Temporary disability" is one that the insured person will recover from.

A medical certificate must be submitted together with the claim as evidence of the insured person's condition of disability. Payment of the benefit for permanent disability may be made at one time in one lump sum or over a period of time by a series of payments.

In the above question, you have received a lump sum. Unless the payment was conditional in which you are required to refund the payment if you recover partially or wholly in future, then the insurance company cannot ask for a refund.

In usually cases, the standard terms in an insurance policy would not have a condition requiring refund where a lump sum is payable. By contrast, where the benefit is payable by installments, there could be a condition that the insured person provides proof to the insurance company from time to time of his/her continuous permanent disability. It depends on the specific terms of the policy in question.

3. I seldom participate in risky or dangerous sports/activities (e.g. water skiing), but I was injured on one occasion while playing such a sport. Is such an injury considered as an "accident" or "self-inflicted" or a "negligent" event? Will it affect my claim for medical or accident insurance?

As discussed under the subject of "exclusion" clause, the main issue is whether or not the particular sports that you have participated in is an excluded coverage. If yes, the insurance company will not pay. If no, you can submit a claim which will likely be admitted.

4. If I have received compensation from personal injury litigation against the wrongdoer, will it be used to set off part of my claim from my insurance policy?

There should be a "subrogation" clause which is also a standard term in an insurance policy.

Under this clause, if your insurance company has already paid your claim, your rights and remedies are "subrogated". In simple words, the insurance company is placed in your position and takes over all of your rights and claims against the defaulting party. Note that your insurance company can only exercise the right of subrogation if it has admitted and paid your claim under your insurance policy.

According to the facts in the above question, you have in effect exercised your rights and have already obtained compensation from the wrongdoer. In this case, the compensation may be offset against the liability of your insurance company under the policy it has issued to you.

Example : You have obtained $20,000 as compensation from the defaulting party via personal injury proceedings. However, your insurance company should pay you $40,000 according to your insurance policy. Since you have already received $20,000 from the wrongdoer, you will only get $20,000 from the insurance company.

The principle of subrogation is to prevent the insured persons from making a profit out of their insurance policies.

For details about personal injury litigation, please go to another topic – Personal Injuries.



IV. Insurance against damage or loss of property (relating to flats and motor vehicles)

Loss of or damage to household contents such as furniture, decoration, electrical appliances and personal valuables can be insured. A typical example of such kind of insurance is a "Householder's Comprehensive" insurance policy which may provide cover in one package for

  1. loss of or damage to the contents of a dwelling caused by fire, lightning, explosion, burst water pipes, theft, typhoon and windstorm, and flood;
  2. loss of or damage to servants' property;
  3. costs of alternative accommodation during the period in which the household is being repaired after a misfortune that is insured against;
  4. liability to the public; and
  5. personal accident benefits for the policyholder.

Thefts and traffic accidents are a great concern to car owners since they can cause bodily injury or death to a third party, and can also incur huge expenses. Some insurance companies which offer motor vehicle insurance enthusiastically encourage safe driving by granting a "No Claim Discount" if a policy remains claims-free (i.e. the car owner has not submitted any claim before). However, a motor vehicle policy generally does not cover the driver's own death or injury (unless otherwise stated).

1. If my home and the furniture inside are damaged, will the insurance company compensate me for the full value of my property? Will the insurance company make a professional valuation or estimation before effecting payment?

Unless the claim is for a small amount, in which case the insurance company will fix the amount of compensation itself, the insurance company will usually appoint a surveyor to assess and confirm the damage and determine the fair compensation. In both cases, the amount of compensation will likely be less than the original purchase price. The ordinary wear and tear factor, and the deprecation, will normally be included in the calculation of the compensation.

However, where the insured property is a valuable article, the value of the property and the amount of compensation can be agreed beforehand. In the event of loss or total damage, the insurance company is liable to pay the agreed amount.

In the example of a painting or an antique, the insurance company may appoint an expert to determine the fair value of the painting/antique before agreeing to the insured amount.

2. I am an owner of a flat inside a building that has coverage for third party liability. Can I escape from all liability if visitors or occupiers were injured in an accident inside the building?

If the insurance of the third party's risk only covers the common areas of the building, the insurance company will only pay if the accident happened in these areas (but not inside your flat).

You will have to purchase your own occupiers' liability insurance for coverage of your own flat in respect of injuries to visitors in your flat. Most home-owner's insurance includes this cover.

3. When an accident happens, what should a driver do or not to do? In case the driver is being sued by the victims, should the driver appoint a lawyer for defence before informing the insurance company?

The driver should immediately contact the traffic police so that the accident can be officially recorded. The official record might be needed as evidence in any subsequent insurance claims and legal proceedings. The driver should not settle or agree to any matter on his/her own with any of the other parties involved.

The driver should also inform his or her insurance company (within the time span specified in the insurance policy) and agree on how to proceed. Where the insurance company is prepared to admit the claim, the insurance company will take over the case and instruct its own legal adviser on proceeding with the defence.

4. Should the driver arrange to repair the car immediately after a traffic accident? Is the driver required to obtain prior approval from the insurance company for the costs of any repair?

No, the driver should immediately contact the insurance company so that the company can instruct its own surveyor to assess the extent of the damage, the repairs to be done, as well as the costs involved.

After the insurance company (based on the findings of its own surveyor) agrees to proceed, the driver can then have the repairs carried out as agreed.

5. I am the registered owner but not the "real owner" of a car ("real owner" is the person who actually paid for the car). Can I obtain insurance coverage in respect of the car? Will it make a difference if I am the "real owner" but not the registered owner?

As described in the first part of the question, you are the registered owner but not the "real" or "beneficial" owner.

As the registered owner, you still have an insurable interest in the car. Irrespective of the ownership position between you and the real/beneficial owner, you are liable for all the risks as between you and all other parties in case a traffic accident occurs. Therefore, you can purchase motor insurance for your car.

In answer to the second part of the question, if you can show evidence of your beneficial ownership (e.g. you have paid all or part of the purchase price for the car), you can also purchase the insurance.

6. I am a car owner. Am I bound to purchase third party liability insurance for my car under the law? What are the consequences if I fail to do so?

Section 4 of the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272 of the Laws of Hong Kong) requires all users (i.e. you and all your permitted users) of your car to have third party insurance.

If you are convicted of having contravened this section, you will be liable to a fine of $10,000 and to an imprisonment of 12 months, and possibly to disqualification from driving for a period of between 12 months and three years.



V. Employees' compensation and mandatory provident fund (MPF)

Employers are liable to pay compensation for injuries that are sustained by their employees as a result of accidents that arise out of and in the course of their employment. They may also be liable for occupational diseases suffered by their employees.

Following the implementation of the MPF (an employment-based retirement protection system) on 1 December 2000 , both employers and employees should know more about their rights and obligations relating to MPF schemes.

For more information regarding employees' compensation matters or MPF matters, please go to another topic – Employment Disputes, or visit the website of the Mandatory Provident Fund Schemes Authority.

1. Does Hong Kong Law require all employers to take out insurance for their employees? Is there a statutory minimum amount for the sum insured?

Under the Employees' Compensation Ordinance (Cap. 282 of the Laws of Hong Kong), employers are required to take out employees' compensation insurance.

According to section 40 and schedule 4 of this Ordinance, the minimum amount of insurance coverage is:

  • Where the number of workers in a company does not exceed 200, $100 million per event;
  • Where the number of workers in a company is more than 200, $200 million per event;
  • In the case of a principal contractor undertaking construction work, $200 million per event; and,
  • In the case of a group of companies, $200 million per event.

2. Who are required to joint the MPF schemes (or other recognized occupational retirement schemes) under the law? Are self-employed persons or casual workers (who are not employed under contracts of employment) also required to join these schemes?

Unless exempted for specific cases, the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong) requires all employers to arrange for their employees, including casual workers, to join a MPF scheme or a recognized occupational retirement scheme.

However, casual workers who work for less than 60 days are not included in the requirement.

Self-employed persons are also required to join a registered scheme.

3. What are the statutory amounts or percentages of income for mandatory contributions under MPF schemes?

In the case of employees, the mandatory contribution to be made respectively by the employees and their employer is a sum equal to 5 percent of the employee's monthly wage. For the calculation of mandatory contribution, the monthly wage is subject to a maximum amount of $25,000 per month. However, an employee whose monthly wage is less than $6,500 is not required to make the mandatory contribution.

For self-employed persons, the mandatory contribution is 5 percent of the person's monthly earnings (subject to a maximum level of income of $25,000 per month or $300,000 per year). Similar to the case of employees, a self-employed person whose monthly income is less than $6,500 is not required to make mandatory contributions.

In the case of casual workers who are members of an industry scheme, the authority publishes the required percentage of contribution. Please also note that these casual employees are not required to make mandatory contributions if their daily income is less than $250.

In addition to the mandatory contributions, employees or self-employed persons can also make voluntary contributions to their MPF schemes. For guidelines regarding voluntary contributions, you should check with your scheme providers.



VI. Personal Liability or Professional Liability Insurance

Will professional liability insurance (e.g. for doctors or lawyers) cover all claims resulting from professional negligence? Are there any guidelines for defining "negligence" in such cases?

Nowadays, anyone who gives another person advice and/or services that require skills according to the standards of a recognized discipline or expertise might be regarded as a professional.

In Hong Kong, the law requires members of certain professions to have professional indemnity insurance. For example, as we have discussed in the answer to Question 8 in Part I, the law requires insurance brokers to have this type of insurance.

Under professional indemnity insurance, typical coverage includes: breach of statutory duty and/or common law duty; unintentional defamation and infringement of patent, copyright and trademark; loss or damage to documents; criminal or malicious acts by employees and principal of the insured person/company.

The typical exclusions (items that are not covered) include: criminal or deliberated wrongful acts of the insured professional; claims or circumstances known prior to the policy taking effect; any matters arising from or as a result of insolvency, bankruptcy or liquidation; acts of war or terrorism; and, any matters outside of the specified jurisdiction or territory.

Professional negligence may arise from an act or continuing conduct of a professional which fails to meet the standards of the required care and skill, and results in provable damage to his or her client. However, negligence does not include the exercise of professional judgment even where the results are detrimental to his or her client.



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