Home insurance premium is low compared to your property cost. Depending on the coverage, premiums range from $50 to $350 per $100,000. Insurers often bundle a variety of benefits and term it free covers. The truth is, these are factored into the premiums. Examine your policy and risk exposure carefully when choosing an insurer.
If you have an outstanding mortgage loan with HDB or any financial institution, you are required to buy fire insurance. However, the cover is very basic as the insured value is limited to either the outstanding loan amount or the cost of reinstating the building structure. The former benefits financial institutions by protecting their loans to home owners. Therefore, a separate policy is needed for the building, as do your renovations and contents (e.g., furniture, household appliances and personal effects)
The purchase price of your property includes land costs and seller’s profit. Your policy only covers replacement cost, i.e. the cost to rebuild your home. You should engage a property valuator or quantity surveyor to determine the sum insured.
The kind of coverage you get depends on your insurer and policy. There are normally two types of coverage – Insured Perils and All Risks. Regular insured perils are:
- Fire
- Lightning
- Explosion
- Impact by road vehicles
- Bursting or overflowing of water tanks or pipes
- Theft by violent or forcible entry
- Specified natural disasters such as floods, windstorms, earthquakes and volcanic eruptions
- Riots and strikes
Any loss or damage that is not caused by the above is not covered. Offering a wider but more expensive cover is the all risks policy. Although it includes accidental damage, it can have a longer exclusion list as compared to an insured perils policy, despite being termed “all risks”.
Being in a flood-prone area can affect the value of your property. Residents living in the highest storey can be put out by rainwater overflowing from an open rooftop, whereas water seepage can occur at any level if common corridors are deluged.
Not all losses are payable. Claims for losses are dependent on your policy coverage, especially the specific and general exclusion terms. Two home policies covering the same perils may not have the same exclusions. Also, in the event of an insured loss, you need to submit details of your belongings and proof of their existence. Prepare an inventory of your belongings and valuables beforehand, and make copies of receipts, photos or other kinds of evidence to prove ownership.
Theft is an insured peril only if it involves forcible entry or exit. The misconception is that all break-ins are covered. Insurers usually exclude valuables, paintings and antiques. Otherwise, caps are imposed on a single article (e.g., $500 apiece) or collective items (e.g., two-thirds of the total sum insured for all valuables). If you have items that exceed the limit, you should bring this up to your insurer for extra coverage.
Household insurance comes in many forms with varying coverages, terms and conditions. Fire insurance is one of the more basic protections available to an owner of a property, covering the building and/or its contents.
Most fire insurance for buildings provide cover against damages caused to the building by:
- fire
- lightning
- domestic explosion
- bursting or overflow of water tanks and apparatus
- road vehicle impact
- aircraft impact
- malicious intent
- riot and strike
- earthquake, windstorm and flood
Depending on the insurers, other perils such as subsidence and landslip due to windstorm and flood may also be included.
Policyholders of property insurance are advised to ensure that the sum insured reflected in their insurance policies is adequate for rebuilding the property. Using a sum insured which is too low will affect the amount of the payout in a claim. Conversely, having a sum insured which is too high will result in the policyholder paying more premium than necessary. Insurance buyers can seek the assistance of a qualified property valuer or quantity surveyor to help determine the adequate sum insured for their insured property.
Replacement Cost
The sum insured of a property is usually computed on a replacement cost basis, which is the cost to replace (i.e., to reconstruct) the property, and necessary incidental charges like professional and debris removal fees.
Before we calculate the replacement cost of a property, we need to know the Construction Floor Area (CFA) and the construction cost of the property.
Construction Floor Area (CFA)
CFA is the area of all building enclosed covered spaces measured to the outside face of the external walls including covered basement and above ground car park areas. You can obtain the CFA from the developer of your property. Strata-titled properties such as condominiums must be insured for property damage by the MCST under the Building Maintenance and Strata Management Act s70.
Construction Cost
The construction costs for different types of buildings are usually advised by quantity surveyors or property consultants, which also publish construction cost indicators such as this
Replacement Cost Calculation
The following example provides a simplified approach to replacement cost calculation solely for the purposes of general understanding. Intricacies in the assessment of replacement cost may require professional advice to determine a more accurate replacement cost.
Example: Mr Lim lives in a semi-detached house located in a sub-urban district with a construction floor area (CFA) of 230 square metres. Mr Lim would like to purchase fire insurance for his property and wishes to know an indicative sum with which he can insure his house.
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(1) Note - Average cost/square meter used in this instance.
(2) Note - Value of built-in furniture and fixtures, light and electrical fittings, etc. estimated by owner.
(3) Note - Professional fees for reconstruction work are assumed at 10%, demolition and removal of debris at 5%, and GST at 9%
*Content on this page is not professional advice. You should seek the assistance of a qualified property valuer or quantity surveyor to help determine the adequate sum insured for your insured property.