Buying a house is perhaps one of the biggest investments in our lives. However, not many protect their property assets adequately through home insurance. In densely populated Singapore, many people live in Housing and Development Board (HDB) flats or in strata-titled properties, e.g.mixed residential/office developments and condominiums. How many are aware of the protection that is required for their homes?
Need for Insurance Cover
Our home is our most important and valuable asset. It needs to be protected from damage and destruction, which could be caused by fire, theft or unforeseen circumstances, e.g.bursting of water pipes. These could cause substantial financial losses to us as home owners. Buying home insurance will ensure that we get comprehensive coverage as it usually provides protection for loss or damage to your renovation, household contents, personal belongings as well as claims against personal liability for damage to neighbouring areas.
This article focuses on the type of insurance that are available for strata-titled properties and for individual property owners.
Insurance Cover for Strata-titled Properties
In strata-titled properties, communities own, enjoy and share responsibility for the upkeep of common facilities such as lifts, car parks, sport and recreational facilities in the estates. Residents of these properties usually delegate the maintenance of these facilities within the basic building structure and common areas, to a managing body known as the Management Corporation Strata Title (MCST). The MCST is formed under the Building Management and Strata Management Act (BMSMA) that is under the purview of the Building and Construction Authority (BCA) of Singapore.
What should the MCST and individual property owners look out for when purchasing insurance for their property?
Insurance purchased by the MCST
One important tasks of the MCST is to ensure that the every building in the property is covered by a damage policy (or fire insurance policy) against various situations that might occur Most insurance policies for damage provide cover against damages caused to the building by the following situations, although the type of coverage depends on the insurer and policy purchased. Situations or perils that are covered by a MCST-purchased damage policy include (but not limited to):
- domestic explosion
- bursting or overflow of water tanks and apparatus
- smoke damage
- sprinkler damage
- 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 windstorms and floods may also be included. The MCST can, however, decide not to insure against any specific or all damages if all residents are in agreement.
Apart from the damage policy, the MCST must also purchase any other insurance required by law. For example, insurance required under the Work Injury Compensation Act that provides an expedient, low-cost compensation system that is an alternative to claiming for damages under the common law. In the case of MCST, this insurance could cover the security guards, cleaners or other workers engaged by the MCST for the upkeep of the common property.
With increasing awareness of consumers, organisations are exposed to a myriad of legal liabilities arising from accidents due to acts of negligence of its employees or representatives in the course of business. Similarly, the MCST faces such exposure during the management of the common facilities. As such, it must take out the public liability insurance to protect itself from claims from third parties for damage to property or death or injury to any person that may occur on the common property.
Several insurance companies in Singapore offer such policies, for instance, AXA, AIA, Tokio Marine, NTUC Income and MSIG Insurance (Singapore). Visit their websites for information and to get a quote so that comparisons could be made.
How much coverage is needed by the MCST?
According to the General Insurance Association of Singapore (GIA), 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 or situation. 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. 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.
It is the responsibility of the MCST to ensure that the sum insured is adequate. As the cost of fire insurance is normally low and very affordable, the risk of under-insuring one’s property certainly outweighs any savings on the insurance cost. When determining the adequate sum insured specific to the property, the MCST should seek the advice of a qualified property valuer or quantity surveyor.(More information can be found at the GIA website.) Thereafter, seek out quotes from the various insurance companies so that you could conduct detailed comparisons.
Insurance purchased by individual owners
According to the Singapore Civil Defence Force, about 63% of fire calls made in 2016 were from residential premises. As Mr John Brice, senior vice-president, underwriting, at MSIG Insurance (Singapore) said in a Straits Times article, “This goes to show how vulnerable we are to fire accidents. Not many households are prepared for the possibilities of a fire or have a fire extinguisher at home.”
While the insurance purchased by the MCST may look adequate to most, most MCST insurance cover only the internal and basic building structure, fixtures and fittings done by the developer, and common areas. The contents within an apartment are not covered by the MCST insurance. As such, any improvements and/or renovations made to the property may not be covered in the policy taken up by the MCST. It is therefore advisable for individual owners to buy a separate fire insurance policy or a comprehensive home insurance covering contents, personal effects and belongings as well as renovation.
“Contents cover” refers to any physical and movable household items or personal belongings including money and valuables kept within the premises that belong to the owner and family members. This is subject to a limit which varies with different items. “Renovation cover” refers to the additions made within the premises by the current owner or any previous owner or tenant in the form of fixtures and fittings. This could include flooring, built-in wardrobes and kitchen cabinets.
Individual owners could also take out other insurance on their units, for example, their liability arising from falling windows. As the GIA said, fire insurance is only “one of the more basic protections available to an owner of a property”. As such, it is important for individual owners to cover themselves adequately, as adding on more comprehensive insurance policies, in particular for home contents, would help to complement the basic fire insurance and give them a peace of mind.
If the property is mortgaged to a bank, owners are required to take up a “Mortgagee Interest Policy” (MIP). This is because the financial interest of the bank is not covered by the policy purchased by the MCST. Should the mortgaged unit be damaged by fire and a claim from the policy purchased by the MCST fails, the MIP will protect the bank’s financial interest.
If there is a failure to service the loan as a result of the damage to the mortgaged unit, the bank could make a claim on the MIP. There is no double insurance involved as the policy arranged by the MCST protects the interest of the homeowner and the MIP protects the interest of the bank.
How much should an individual owner insure for?
It is important to insure our property for the right amount. When insuring an apartment or a house, the sum insured should be the total cost to rebuild or reinstate it plus professional fees and removal of debris. This means the total benefit you will get is limited to the total cost of rebuilding or reinstatement. It does not mean that the more fire insurance policies we buy, the higher the amount we can claim in the event of fire damage.
To insure the content of the apartment, the sum insured should represent the replacement value of the insured items at the time of the inception of the policy. Owners could create an inventory listing of their home contents by listing down the items they are going to insure and the original cost and estimated current value of these items. To obtain the replacement or reinstatement cost valuation of your property, it is advisable to seek professional advice from a qualified quantity surveyor or qualified property valuer. (Detailed information on calculations of replacement value and premiums could be retrieved from GIA’s website.)
Premiums for home insurance is inexpensive. For instance, the annual premiums on private dwelling buildings on a sum insured of $1 million (reinstatement value) could range from $750 to $1,000 for landed properties. As an indication, the annual premium for a non-HDB apartment can range from $250 to $350 on a reinstatement sum insured of $500,000.
Before we embark on a journey in search for the most appropriate fire or home insurance, take a look at the following tips which would guide us in compiling the relevant information when we purchase a policy or when you need to update your policy.
- Tip 1: Take some time to compile an inventory listing of our home content and belongings. If we have purchased new items, we can update to our inventory listing accordingly. We need to inform the insurer to increase the sum assured if we find that there is a significant increase in the value of the home contents.
- Tip 2: Keep the receipts of the valuable items which we have bought to facilitate the claims process.
- Tip 3: For priceless items like antiques, works of art or jewellery items which are high in value, we need to ensure that we have adequate cover by informing your insurer on these items. There will usually be a limit imposed on the sum assured for each item.
- Tip 4: If we are tenants of a flat, we will only need to take up insurance for our own belongings or contents. Thus, we can take up a home insurance which covers contents only.
- Tip 5: Always inform the insurer of any fire, damages or losses to our home immediately when an incident occurs. If we suspect that crime is involved, we will need to lodge a report with the police as well.
Here are some important terms to take note of when buying a fire or home insurance policy.
- Peril: A condition that can cause a loss such as fire and theft.
- All-risk Policy: All risk policy covers losses due to any perils unless specifically excluded in the policy. It is a more comprehensive policy that offers a broader protection.
- Named Perils Policy: It covers losses that are due to the perils that are specifically listed in the policy.
- Average Clause: A policy condition that requires the policyholder to fully declare the total value of the building and home content to be paid (full loss) in the event of a claim. The claim amount may be reduced proportionately if you have underinsured your property.
- First Loss Policy: It is an insurance policy in which the policyholder arranges for cover for an amount below the full value of the items insured and the insurer agrees not to penalise the policyholder for underinsurance.
- Excess: A minimum amount which you have to bear for every claim and the amount varies for different insurer.
- Free Look period: It is the time period whereby the policyholder is granted a specific period of time by the insurer to examine the policy before acceptance. If the policyholder is unsatisfied, he or she has the right to return the policy with a full refund of the initial premium.
With the information above, it is hoped that the MCST and property owners have an understanding of the type of policies to take up to protect their properties; and what to look out for when sourcing for an appropriate policy.
In any case, it is important to seek the advice of qualified quantity surveyors or qualified property valuers to get a replacement cost valuation of the property. Compile all the necessary information and approach more than one insurance company to get different quotes so that you could make detailed comparisons.
We wish you the best in getting the most appropriate policy that will give you adequate coverage and peace of mind.