Home Insurance Explained
Home insurances in Singapore can be broadly classified as providing coverage for
- Building only
- Fixtures, Fittings and Renovation
Insureds may opt for all or any single component.
For home owners who are using a Singapore home loan to finance their property, the financing institution will mandate that they take up a insurance for building only, or what is commonly termed as a fire insurance.
HDB dwellers who are using a HDB loan will have to use the HDB Fire Insurance Scheme from HDB’s appointed insurer.
Misconceptions about fire insurance
A fire insurance only indemnifies for damages to the building structure, and does not cover additional improvements or renovation.
A fire insurance not only cover damages arising from fire, but by other perils as well. The below outlines the most commonly insured perils.
Table 1: Insured Perils
Source: The General Insurance Association of Singapore, “Frequently Asked Questions about Fire Insurance for Private Residential Properties”
Some policies like the HDB Fire Insurance may also indemnify against landslide and subsidence.
The following sections discuss some issues you should be aware of before shopping for a home insurance.
For home contents insurance, watch out for the wording of “new for old” or “replacement value”.
The former means that replacement cost is based on the value of an equivalent new item. Whereas the latter means that replacement cost is based on a second-hand item or after deducting wear and tear or depreciation.
Nevertheless, most contents policies have a claim limit for electronic products like laptops, mobile phones as well as valuables (jewellery, precious metals and collectibles). The limit can be a percentage of the insured sum or an absolute value. To insure for full value, additiona1 premium will have to be paid.
At any rate, the total payout will not exceed the sum insured.
For some policies, loss or damage will not be covered if the home is left vacant beyond a certain period. This period varies with the insurer. It can be 14 days, 60 days or any other period as stipulated by the insurer.
Rented home or room
Even if you are living in a rented premise, you can still take a home insurance for your contents. Do note that even if the owner of the house has taken a home insurance policy, the terms of the policy can be such that it does not cover tenants’ belongings.
As a tenant, some insurance policy may only cover your belongings while others may extend coverage to include items not belonging to you but are under your charge as a tenant.
Let or sublet home
Owners who rent out a room or the entire house should take note that most home insurance policy do not protect against malicious damage or theft by tenants. Even accidental loss or damage caused by tenants may not be covered.
Under-insurance occurs when the cost of reinstatement of your property, at the time of damage or loss, is more than the sum insured.
When this happens the insurer may not reimburse you for the full cost of damage even if it is below the insured sum. Rather the claims payout maybe pro-rated.
Claims Payout = Insured sum / Replacement cost of total destruction of property x Actual cost of loss at time of occurrence
An illustration: If a residential property is insured for $700,000 but the cost of reinstatement in the event of total destruction is $1 million, the property is under-insured. Hence when the property experiences a damage requiring $50,000 in repairs, the insurer will only pay
Claim Payout = $700,000/ $1 million x $50,000 = $35,000
Thus it will be wise to review the insured sum annually or when renovations are carried out to prevent under-insurance.
Nevertheless, over-insured may not be a good thing either as the insurer will only pay up to the cost of reinstatement.
Thus, a professional valuer or quantity surveyor should be engaged to determine the total cost of reinstatement. For a rough guide of the replacement cost (excluding the renovations) for various private homes, you can refer to the “Frequently Asked Questions about Fire Insurance for Private Residential Properties” at the The General Insurance Association of Singapore’s website.
Except for the HDB Mandatory Basic Fire Insurance, most other home insurance policies can be transferred to your new house when you move, subject to additional premium or refund, depending on your new housing type.
Payment of premium
For home insurance policy, most insurers require that the premium be paid annually, or even
in full at the start if you are opting for a period of insurance of several years. If no claims is made during the period of coverage or the policy year, a certain percentage of the premium may be refunded, which is termed as a “No Claim Bonus” or “No Claim Discount”.
For cancellation of policy, a portion of the premium may be refunded if no claims have been made.
To wrap things up,
For most Singaporeans, a home is their most expensive possession, thus taking a suitable home insurance to indemnify against damages will be a wise move. Click here for a free professional consultation.
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