alea
alea
alea
alea
Health Insurance Tips
alea
Reviewed by a licensed advisor

Premium Levy: What Is It, and How Is It Calculated?

Learn about the premium levy and levy caps, why it’s collected, and how to calculate your levy this year.
Last update:
24th August 2022
alea
Reviewed by a licensed advisor
beads on an abacus
beads on an abacus
Learn about the premium levy and levy caps, why it’s collected, and how to calculate your levy this year.
Last update: 24th August 2022

In 2018, the Insurance Authority in Hong Kong introduced the premium levy on insurance policies. In this article, you will learn what the premium levy is, why it’s collected, what the levy rate and caps are, and how to calculate your premium levy this year.


What is a premium levy?

In order to understand the premium levy, let us first get acquainted with Hong Kong’s Insurance Authority (IA). The Insurance Authority is an independent body whose role is to regulate the insurance business, ensure the stability of the industry, and protect and educate policyholders. In order for the IA to maintain financial independence from the government, it must generate funds to cover its operating expenses. The IA obtains these funds by collecting fees from insurers and brokers as well as the premium levy from policyholders.

In accordance with the Insurance Ordinance (Cap. 41), the Insurance Authority started collecting a levy on insurance premiums from policyholders on January 1, 2018. To minimize the impact on policyholders and facilitate smooth adaptation of the ordinance, the IA first introduced the levy rate at 0.04%, gradually increasing it over four phases, until it reached the target levy of 0.1% on April 1, 2021. The premium levy in Hong Kong is currently 0.1%.

What is the premium levy rate? Is there a cap?

All life insurance and general insurance policies, including medical insurance, are subject to the premium levy, with some exceptions, such as reinsurance business, policies underwritten by authorized captive insurers, and aviation, marine and goods-in-transit insurance.

The levy rate has been 0.1% since April 2021. The cap on the levy payable depends on the type of insurance. For life insurance, the cap is HK$100. For general insurance, the cap is HK$5,000. The levy cap is applied per policy, per policy year.

To summarize:

  • Levy rate: 0.1% (since April 2021)
  • Levy cap, life or long-term insurance: HK$100
  • Levy cap, general insurance: HK$5,000

Another way to look at it: A policyholder pays the levy cap for a given policy for the policy year if:

  • Their life insurance premium amount is equal to or greater than HK$100,000
  • Their general insurance premium amount is equal to or greater than HK$5,000,000

Note that group life insurance with medical coverage provided by employers is capped according to the "general insurance" category.

Need insurance advice?

How is the levy calculated?

The levy payable is the lower of: The premium amount paid in that policy year, multiplied by the 0.1% levy rate The levy cap (HK$100 for life insurance, HK$5,000 for general insurance)

Please see the examples below.

Example 1: Levy payable is less than the cap

John has individual medical insurance. His monthly premium is HK$600, which means he pays HK$7,200 in health insurance premiums in the policy year (HK$600 * 12 months = $7,200).

The levy payable is the lower of:

  • HK$7.20 (premium amount paid * 0.1% levy rate) = (HK$7,200 * 0.001)
  • HK$5,000 (levy cap for general insurance)

Therefore, John’s premium levy is HK$7.20 for this policy year, and the total amount he must pay s $7207.20 (premium + levy).

Example 2: Levy payable exceeds the cap

Vanessa has a life insurance policy. Her annual premium is HK$150,000.

The levy payable is the lower of:

  • HK$150 (premium amount paid * 0.1% levy rate) = (HK$150,000 * 0.001)
  • HK$100 (levy cap for life insurance)

Because the levy calculated exceeds the levy cap, Vanessa’s premium levy is HK$100 for that policy year, and the total amount she must pay is $150,100 (premium + levy).

The examples above should give you a good idea of what premium levy you can expect to pay. Remember that if you have more than one insurance policy, the levy cap would be applied per policy, per policy year. To find out the exact amount of premium levy you must pay, it’s best to contact your insurance broker or insurance company.

How do I pay the premium levy?

The policyholder pays the levy together with their premium to the insurer. The insurer then remits the levy to the Insurance Authority within the remittance period.

The insurer is also required to submit an audited annual remittance report to the Authority. This protects the policyholder from paying excessive levies to the insurer. If an insurer is found to be retaining any part of the levies from policyholders, the IA may impose on them a pecuniary penalty of up to HK$10,000.

FAQs

What happens if I refuse to pay the premium levy?

If you do not pay the premium levy, the Insurance Authority might impose on you a pecuniary penalty of up to HK$5,000 per the Insurance (Levy) Regulation.

How does the Insurance Authority prevent insurance companies from collecting excessive levies?

Each insurer must submit an audited annual remittance report to the Insurance Authority. If an insurer is found to be holding any part of the levy – including excess – from policyholders, they may be subject to a pecuniary penalty of up to HK$10,000.

Should I pay my premium levy directly to the Insurance Authority?

No, you should not pay the levy directly to the IA. As stipulated by the Insurance (Levy) Regulation, the policyholder should pay the levy to their insurer together with their premiums. Your insurer will then remit the levy to the IA.

Looking for life or health insurance for yourself, your family or your team?

You already have an insurance policy? You could find a better plan!

Alea brings you choice, unbiased advice and outstanding service, with access to 100+ options from 25+ insurance companies. If you already have an insurance policy, switching insurance policies with Alea doesn’t cost you a thing.

Get free quotes or schedule a quick chat with us.

An advisor will be in touch to answer all your questions!


This article was independently written by Alea and is not sponsored. It is informative only and not intended to be a substitute for professional advice and should never be relied upon for specific advice.