Frequently Asked Questions about Fire Insurance for Private Residential Properties

1. What does fire insurance for residential buildings cover?

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.

In the case of fire insurance on the building (not including its contents) of a residential property, it generally covers the building structure, the permanent fixtures and fittings such as built-in cabinets, baths, toilets, air-conditioning units, fixed carpet, parquet flooring and other immoveable decorations or improvements. It may also extend to cover outbuildings such as garages, covered porch and perimeter walls. However foundations and swimming pools are normally not covered under fire insurance for buildings.

2. What are the risks insured against?

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.

3. What is the sum insured of a residential building?

The term “sum insured” in a fire insurance for residential property is the insured value of the property and the maximum amount an insurer will pay if it is totally destroyed by an insured peril. The sum insured should reflect the cost of rebuilding the insured property (also known as the reconstruction or replacement cost) to its original condition (or its equivalent) at the time just before the damage occurred. For added protection, professional fees and cost of debris removal may be included in the sum insured. Under normal circumstances, the market value of the property is not used as the sum insured and there is no direct relationship between the market value of a property and its reconstruction cost for the purpose of insurance. The sum insured also should not take into consideration the foundation and the value of the land.

4. As a general guide, how do I estimate the sum insured?

It is the responsibility and in the interests of the owner to ensure that the sum insured is adequate, otherwise the owner may find his/her insurance protection wanting in times of contingency. As the cost of fire insurance is normally low and very affordable, the risk of under-insuring one’s property certainly out-weighs any savings on the insurance cost.

It therefore makes economic sense to allow for some buffer in the sum insured of your property. When determining an adequate sum insured specific to your property, you should also seek the assistance of a qualified property valuer or quantity surveyor.

The Replacement Cost Table below provides a general guide to replacement cost of various private residential developments. To estimate the replacement cost of your property, you first need to know its 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 or the Managing Agent in the case of a condominium unit (i.e. Strata Titled property). Alternatively, you can estimate the CFA by measuring the external area of your house.

For instance, if your property is rectangular in shape, you need to measure the external length and width of your house and multiply these two figures to arrive at the CFA. If for some reason you cannot measure the external dimension of your property, you can measure the internal area and add the thickness of the wall to the dimensions. In the case of a multi-storey property, the CFA of the property is simply the sum of the CFA of each floor.
After you have estimated the CFA, you need to identify the type of development your property falls into in the Replacement Cost Table. You can then arrive at an indicative replacement cost of your property using the methodology illustrated in the worked example below.

The replacement cost so derived is at best only an estimate of the sum insured for the purpose of fire insurance for your property. To obtain the replacement cost valuation specific to your property, you should seek professional advice from a qualified property valuer or quantity surveyor.

REPLACEMENT COST TABLE
(PUBLISHED DATE: Jan 2008)

Source: Rider Hunt Levett & Bailey

The above replacement cost per CFA for the respective development types covers the cost of rebuilding a landed house or an apartment. Excluded from this cost are foundation cost, professional consultant fees, fixtures and fittings, loss of rental and other consequential losses and Goods and Services Tax (GST).

Each replacement cost in the Table provides for an average home to be rebuilt to its existing standard and specifications. It does not cover any cost of upgrading the specification and quality of the house. The above cost also assumes that quotations for the replacement work are called within 6 months of the damage occurring.

While every effort has been made to ensure the accuracy of the contents of this table, Rider Hunt Levett & Bailey will not be responsible in any way for any error, inaccuracy, loss or detriment arising out of or in connection with the use of or reliance on this Table. It should be highlighted that within each residential building type, there is a wide range of different specifications, quality of materials and finishes. Expert advice should accordingly be obtained should a replacement cost valuation be required for a specific property.

REPLACEMENT COST CALCULATION
Example:
Mr Lim lives in a semi-detached house located in a surburban district with a construction floor area (CFA) of 230 square meter. 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.

(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 7%

Rider Hunt Levett & Bailey (www.rhlb.com.sg)

Rider Hunt Levett & Bailey are a leading professional construction consultancy practice and are part of a global alliance of quantity surveying, project and cost management consultants with 60 offices in South-East Asia, Hong Kong, People’s Republic of China, the Middle East, Australia, the United Kingdom, Europe, and the North America.

Professional services provided extend to both traditional and non-traditional quantity surveying services and cost management services covering feasibility studies, cost planning, contractual and procurement advice, tender documentation, post-contract services, value engineering and value management, financial management and reporting and replacement cost assessment.