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For most of us, buying a home is probably the biggest investment in our life. The destruction or damages to the home or any of our valuable personal properties due to fire, theft or other unforeseen circumstances could often cause substantial loss and severe financial hardship. To manage the financial impact of such loss, we could purchase appropriate insurance policies to cover such event. Having appropriate property insurance can also give you peace of mind. In this issue, MoneySENSE brings you some case stories on commonly encountered issues faced by consumers regarding property insurance, as well as tips on what you should look out for when buying property insurance. Do note that property insurance is designed to indemnify the loss that you have suffered. It does not mean that the more property insurance you purchase on any one property, the higher the amount you could claim in the event of loss.
CASE #1 - What Type of Insurance
is Suitable for my Home?
CASE #2 - How Much Should I
Insure For?
CASE #3 - What should I Do
After a Fire?
CASE #4 - What does my Policy
Cover?
This information is provided by the Monetary Authority of Singapore and the
General Insurance Association of Singapore as part of the MoneySENSE national
financial education programme.
CASE #1 - What Type of Insurance is Suitable
for my Home?
Mrs Jenny Teo has recently moved into her new condominium
and spent a substantial amount of money to renovate
it. As a proud, new home owner, Mrs Teo wants to
make sure that the insurance policy she is buying
will cover any loss or damage to all her valuable
antiques, jewellery, furniture as well as the entire
apartment and the renovation costs she had put in. She
consulted her insurance agent. The agent advised
her to buy a fire insurance policy to cover any improvements
or renovations, such as flooring or built-in cabinets. He
also advised Mrs Teo to buy a contents insurance
policy to insure the contents of her house, including
furniture, carpet, TV, kitchenware and personal effects.
Tips
Insurance Cover for
Private Apartments
- If you are the owner of a private apartment,
it is likely that the apartment block has been
registered as a Management Corporation Strata Title
property. If so, it is the legal responsibility
of your Management Corporation to insure the building
and the common property for fire damage. However,
any improvements or renovations you make to the
property, such as flooring or built-in cabinets,
will not be covered in the policy taken up by your
Management Corporation and you will need to buy
a separate fire insurance policy. In Mrs Teo’s
case, the Management Corporation policy will only
provide cover for the fire damage to common areas
in the condominium.
Insurance Cover for
HDB Apartment
- If you are the owner of a HDB apartment, the
HDB is responsible for providing cover for fire
damage to common areas. However, you are
responsible for the well being of your flat. The
HDB offers a competitively priced fire insurance
scheme for HDB apartments through its appointed
insurer. It is important to note that any improvements
you make to your apartment may not be covered and
you may wish to buy additional or separate fire
insurance coverage.
- When buying an insurance policy on your apartment,
it is important to ensure that the policy covers
damage to your renovation, fixtures and fittings.
Most insurance policies would provide cover either
on a standard sum insured or specified sum insured
basis. However, do ensure that the amount you insure
on your property is adequate, as it is the responsibility
of the policyholders to insure at the full cost
of rebuilding their damaged property.
Insurance Cover for
Contents of Your Home
- Besides providing cover for your renovations,
your insurance policy on contents can also provide
cover for items such as your, furniture, household
appliances, personal valuables and money. A limit
may apply to each of these items unless they have
been individually declared to your insurer.
- For household contents, the replacement value
or worth at the time of the inception of the policy
may be taken as the sum insured. It is important
to ensure the policy limits are adequate to fully
recover your loss. Always check carefully and make
sure you understand what is covered before taking
up a policy. Note that a contents insurance policy
is usually issued separately from your fire insurance
policy, although some insurers issue a combined
policy.
- You should take the time to compile an inventory
listing of your home contents; it will save you
precious time and frustration later. List down
all the items you are going to insure with detailed
description, year of purchase, original cost of
the item and current estimated value. Submit the
listing to your insurer.
- In the event of a loss, it makes it easier for
you to file a complete and prompt claim. The
list should be supported with accurate documentation.
It also helps the insurer to determine the replacement
cost of your lost or damaged possessions and to
settle the claim quickly.
- Remember to update your listing regularly as
you purchase new items and add them on to your
policy coverage. If the value of an item has increased,
be sure to increase your sum insured at the same
time to ensure that you have adequate cover to
replace it with a similar item.
- If you own a number of “priceless” items,
such as antique jewellery or original works of
art, it is important to note that most general
insurers would only insure such items with limits
applied to each item. You may want to seek clarification
with your agent, broker or insurer on such limits.
It is wise to have these appraised to establish
their value. In the event of a loss, you will be
able to receive an insurance settlement that is
appropriate to the value of these items and avoid
any dispute with your insurer.
- Always remember to ask for a copy of the policy
wordings from your insurer before you buy any policy.
Read and understand what the policy covers. If
in doubt, clarify with your insurance agent or
insurer.
CASE #2 - How Much Should I Insure For?
Mr John Tan is the owner of a $2 million landed
property with reinstatement value of $1 million.
He took up a fire insurance policy with sum assured
of $500,000 as he thought that it was unlikely that
a fire would destroy everything at one time. When
his entire family was out on a vacation, a fire broke
out and caused $100,000 in damage. Mr Tan tried to
claim the $100,000 damage from his insurer, but his
insurer told him he could only get $50,000 as his
policy was underinsured by 50%. This ‘condition
of average’ is a standard condition that appears
in most policies that will only allow the policy
to pay for a rateable proportion of sum assured due
to under-insurance.
Tips
- Ensure that the sum insured for your property
is adequate. The sum insured is the maximum
amount an insurer will pay if it is totally destroyed. The
sum insured should reflect the cost of rebuilding
the insured property (also known as the reinstatement
cost) to its original condition (or its equivalent)
at the time just before the damage occurred. As
a general guide to estimate the sum insured for
your property, refer to the replacement cost table
for Private Residential Developments available
at www.gia.org.sg/consumer_faqs.php#fire. This
table estimates the replacement cost of your property
based on the gross floor area and the type of development
of your property. You should also seek the assistance
of a qualified property valuer or quantity surveyor.
- Be aware of what amounts may be claimed under
your insurance policy. If the sum insured
is less than the full reinstatement cost, the insurance
company will pay the full sum if there is a complete
destruction of the property. If the property is
partially destroyed, the insurance company will
pro-rate the payment according to the proportion
of under-insurance. This is known as the
condition of average, which is a common feature
internationally for fire insurance policies.
- The amount to be paid will be computed using
a formula that takes into account the insured amount,
the value at time of loss and amount of loss. In
Mr Tan’s case, the total cost of reinstating
his property is $1 million but the property is
only insured for $500,000, there is an under-insurance
of 50%. The fire that broke out in his house resulted
in partial damage, costing $100,000, to the property. In
computing the amount of claim, his insurer uses
the following formula:
The amount that the house is insured for
_________________________________ X The cost
of damage
The reinstatement value of the house
$500,000/$1,000,000 X $100,000 = $50,000
- Review the insured amount for your property
at least once a year or when renovations are carried
out and make sure that the amount is adequate throughout
the policy period. Note that it does not
mean that the more fire insurance policies you
buy, the higher the amount you could claim in the
event of fire damage. The total claim amount is
limited to the total cost of the property or reinstatement.
CASE #3 - What should I Do After a Fire?
Mr David Teo bought an insurance policy for the
contents in his home. A fire started in the kitchen
due to a short circuit on an overloaded electrical
extension shared by several household appliances. Although
Mr Teo extinguished the fire quickly, the fire gutted
his kitchen. Most of his kitchen appliances
including the kitchen bathroom were damaged. After
the fire was extinguished, Mr Teo immediately made
a police report. However he was unsure of what he
should do next and how he should lodge a claim under
his insurance policy.
Tips
You should take the following action after the fire:
- Report the Loss Promptly
Inform your insurer of the fire and the
extent of damage immediately. Your insurer will
be able to guide you through the steps of making
a claim. You should lodge a police report
if you have reason to suspect that you are a victim
of a crime.
- Protect Property from Further Damage
Take steps to protect your property from further damages. If necessary,
make reasonable temporary repairs such as boarding up broken windows to protect
your home and property from theft and weather damage. Remember to keep
an accurate record of all temporary repair expenses, like bills, receipts
and invoices so that you can include these to your claim. Permanent
repairs should be carried out only after insurance representative/adjuster
has a chance to review the damage.
- Determine the Extent of Damage
Start by assessing the damage in broad categories, such as by location of
damage - kitchen, living room, bedroom etc). Based on these
categories, you can make a written list of the items damaged with as much
details as possible. For example, identify manufacturer, brand name,
place and date of purchase, purchase price.
If possible, place all the damaged items in a secure area. This will
speed up the loss inspection process when your insurer’s representative
or loss adjuster arrives. (Note that Steps 2 and 3 only apply if the scene
of fire is not cordoned off by the Police for investigation.)
- Loss Inspection
Your insurer will usually send a representative
to inspect the damaged property. In some cases
an independent adjuster may be appointed to investigate
the circumstance and extent of the loss, especially
for large scale fires. You will be given the contact
details of the adjuster if one is appointed.
- Filing a Claim
Your insurer will ask you to submit a written claim form to formalize the
claims notification. This is an important step as the claims form
serves as a written record for your insurer to investigate and eventually
settle your claim.
- Settling a Claim
Once the loss investigation is completed,
your insurer will offer to settle the claim. You
will be requested to sign a claim discharge form
stating your consent of claim settlement. It
is always better to prevent a fire from occurring
than to fight one. You may wish to conduct
a quick check in your home to spot potential fire
hazards and take action to reduce or eliminate
them. For more information on fire prevention,
please visit the website of National Fire Prevention
Council at http://www.nfpc.gov.sg
CASE #4 - What does my Policy Cover?
Mr James Tan purchased an insurance policy for his
home contents. His policy provides coverage
for loss or damage to his home contents which includes
theft due to violent and forcible entry into the
premises. Recently, Mr Tan returned home after
a late night movie to discover that his house had
been broken into. The burglars had pried open the
front door and stolen Mr. Tan’s cash and his
wife’s jewellery. The cost of property stolen
amounted to $5,000. Mr Tan lodged the claim with
his insurer. His insurer had agreed to settle his
claim as it was proven that the loss resulted from
violent and forcible entry into his home and within
the sum insured limit for theft coverage. However
as Mr Tan’s policy was subjected to an excess
of $500, his insurer deducted this amount from the
total claim and a final settlement was made at $4,500.
Tips
- A policy excess, also commonly known as deductible,
is the cost you are required to bear if you make
a claim against your policy.
- When you purchase a home insurance policy, take
time to understand the scope of coverage, terms,
and conditions before making your purchase.
- In addition to checking the insurance premium,
you should also check the policy excess as this
will directly affect you when you make a claim.
- Most insurance companies provide brochures designed
to explain the policy coverage and features in
simple language to help you understand the product.
- It is quite easy to obtain the above information. You
can ask for a copy from your agent or broker, or
obtain the brochure directly from the insurance
companies or through its websites.
- Seek clarification with your agent or broker,
or the insurance company if you do not understand
the coverage or have any questions.
This information is provided by the Monetary Authority
of Singapore and the General Insurance Association
of Singapore as part of the MoneySENSE national financial
education programme.
This information is provided by the Monetary
Authority of Singapore and the General Insurance
Association of Singapore as part of the MoneySENSE
national financial education programme.
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