Mr. Lee's car was slightly damaged in a motor accident and sent to a garage for repair work including new parts. He then reported the accident to his insurance company and requested to claim for the cost of repairs. A surveyor negotiated the cost of repairs with the garage, and a total repair cost of HK$50,000 was arrived at.

As stated in the policy schedule, Mr. Lee had to pay HK$10,000 excess on his claim. Mr. Lee was also advised by his insurance company that he had to pay an additional HK$5,000 for depreciation. Why did Mr. Lee have to pay for depreciation?

Normally, cars are insured based on their market value. Motor policies also exclude liability in respect of depreciation and wear and tear. Because garages usually use new parts to replace/repair damaged items, depreciation is usually applied to the claim.

As Mr. Lee's car was manufactured 3 years ago, depreciation was applied to his claim at his cost. 

Since depreciation is a factor affecting the value of a motor car, customers are advised to review the market value of their vehicles annually to ensure the sum insured accurately reflects its current value.

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