Buying a home in Singapore? Read this before getting your home insurance
Buying a home is possibly the single largest financial decision that you will take in your life. Most Singaporeans spend long hours visiting various residential properties before deciding on their dream home.
Unfortunately, home insurance does not get even a fraction of this attention. You must remember that even though the probability of your home getting damaged by fire or flood is small, it does exist. If you neglect to insure your residential property adequately, you could be exposing yourself to unnecessary risk.
A recent survey conducted by AIG Asia Pacific Insurance Pte. Ltd., a prominent general insurance company, revealed some interesting facts. It found that 75% of Singaporeans think that the fire insurance purchased through the financial institution that has provided them with a home loan will cover the contents of their homes as well. This is simply not true. These policies usually provide cover only for damage to the structure of your property in the event of a fire.
There are several other commonly held misconceptions about home insurance. Here are a few points that you should keep in mind when buying your insurance policy.
What exactly does your policy cover?
Insuring your residential property is not just a matter of asking your agent for the premium that is payable for the year and then writing a cheque for that amount. Every insurer has several different options on offer.
Take the example of AIG. They offer homeowners a range of policies, each of which provides different benefits:
- Enhanced Public Housing Contents – this policy includes coverage for household items and valuables up to a sum of S$100,000. It is suitable for HDB flat owners looking for additional insurance to supplement their existing HDB fire insurance.
- Homes Advantage Package – individuals who own executive condominiums or landed homes would find this policy attractive. It offers several benefits including household contents and loss of personal cash. It can even reimburse you for the medical expenditure that you incur due to a robbery taking place at your home.
- Public Housing Protection Plan – if you live in an HDB flat which gets damaged and consequently uninhabitable, this policy will pay for your alternative accommodation expenses up to a certain limit.
Of course, you will have to pay for these additional benefits.
Most home insurance policies usually fall into one of two categories. These are “Insured Perils Policies” and “All Risks Policies.”
An Insured Perils Policy will provide coverage against losses from a specified list of incidents. These could include fire, explosion, theft by forcible entry, and certain natural disasters.
An “All Risks Policy” will usually have a wider coverage. But it will list a number of exclusions that will restrict the benefits that it offers.
Beware of the “average” clause
Some home insurance policies will come with an “average” clause. What does this mean and what are its implications?
Let us take a simplistic example to understand this concept. Say, the actual value of your residential property is S$1 million, but you insure it for S$800,000. Now, if you suffer damage of a value of S$500,000 in a fire, how much will the insurer pay?
You would expect a payment of S$500,000 as your coverage is for S$800,000. But the “average clause” will kick in and you will get only S$400,000. This sum will be calculated in the following manner:
Claim paid (S$400,000) = Loss (S$500,000) X Sum insured (S$800,000) __
Value of Property (S$1 million)
However, if you have a “first-loss policy,” you will be paid a maximum claim amount that does not exceed the value stated in the policy. Considering the same example as we have taken above, you would be paid a sum of S$500,000 instead of S$400,000. The “average clause” would not apply.
Some losses are not covered at all
Home insurance does not protect you from every type of financial loss that takes place. Here is a partial list of the losses that your insurer will not reimburse you for.
- Damage to your home by any type of insects.
- If your home suffers damage when it is being renovated.
- Any wilful harm to your residential property by you or a family member.
- Normal wear and tear of your home.
Does your policy offer these additional benefits?
If your home suffers damage due to a fire or any other mishap, you may have to incur several types of costs. The insurer would require an assessment report from the repairer regarding the nature of the damage and the details of the work to be done. Debris could have accumulated, which would have to be removed. The locks on your door may have to be replaced.
In certain instances, you may have to make alternative living arrangements till your home is restored to its original condition.
Check with your insurer if these risks are covered. If they aren’t, you may consider getting a policy that does cover these risks.
Why home insurance is important
According to statistics released by the Singapore Civil Defence Force, there were 2,818 fire incidents in residential premises in 2016. About half were caused by fires starting in the rubbish chute or in a rubbish bin. Another common reason for fires was cooking that had been left unattended.
Fires or other types of mishaps can damage or even destroy your home. If you have taken the trouble to get yourself a home insurance policy that protects you from most types of perils, your finances would not suffer in the event of a fire or other type of accident. But those who do not pay close attention to their insurance needs could be needlessly exposing themselves to great financial risk.