PROPERTY CONSUMER FAQs

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.

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, the closest estimate is to look at the construction cost regularly published by the quantity surveyor.

CONSTRUCTION COST TABLE
(PUBLISHED DATE: 3rd Quarter 2012)

DEVELOPMENT TYPE Cost per CFA
(S$/psm )
Medium-Quality Condominium 1,950 to 2,500
Good-Quality Condominium 2,400 to 3,050
Luxury-Quality Condominium 3,050 to 4,150
LANDED RESIDENTIAL  
Terrace House 2,150 to 2,600
Semi-detached House 2,350 to 3,100
Detached House 3,250 to 5,350

Source: Rider Hunt Levett & Bailey
Update Research & Development Report (December 2012)

The above table relates to construction cost per Construction Floor Area (CFA) for the respective development types providing indicative cost of constructing a landed house or an apartment.

The following exclusions should be noted:-

* Land Cost * Legal and professional fees * Development charges * Authority fees * Finance costs * Loose furniture, fittings and works of art * Tenancy work * Site infrastructure work * Diversion of existing services * Resident site staff cost * Models and prototypes * Future cost escalation * Goods and Services Tax

Specifically, the construction cost above does not include cost of demolition and removal of debris, and professional fees in relation to the works. These costs should be assessed over and above and construction costs to determining your complete replacement cost.

The construction price ranges above are indicative and due consideration should be given to the different specification, size, location and nature of each project when utilizing this information. The prices here may not fully reflect the extent of current market forces and tendering conditions.

While every effort has been made to ensure the accuracy of the contents of this table, Rider Levett Bucknall 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.

Construction prices as of 3rd Quarter 2012

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 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.

REPLACEMENT COST CALCULATION
Step 1 - Obtain Construction Floor Area (CFA)
Mr Lim's house has a CFA of 230 square meter.
Step 2 - Select appropriate unit cost from Replacement Cost Table
a. CFA(square meter) of semi-detached house
b. Unit Cost (S$/sq meter)
c. Estimated Reconstruction cost 230 square meter x S$3,000/square meter
230 square meter
S$3,000/square meter (1)
S$690,000
Step 3 - Add estimated value of building fixtures and fittings
d. Estimated amount of
e. Sub-total
S$25,000 (2)
S$715,000
Step 4 - Add Professional Fees, Demolition and Removal of Debris, Goods & Services Tax (GST)(3)
f. Professional Fees @ 10% of sub-total (e)
g. Demolition and Removal of Debris @ 5% of sub-total (e)
h. Replacement cost excluding GST
i. GST @ 7%
j. Total
S$78,650

S$35,750

S$829,400
S$58,058
S$887,458
Estimated Current Replacement Cost Approx. S$888,000

(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 Levett Bucknall (www.rib.com)

Rider Levett Bucknall LLP are a leading professional construction consultancy practice in Singapore and are part of a global property and construction practice of Cost Management, Project Management and Advisory Services, with over 80 offices across Asia, Oceania, Europe, Middle East, Africa and the Americas.

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.