What to look out for

GIA chief executive Derek Teo said fire insurance for private dwellings is valid if the premises are used only for residential purposes.
GIA chief executive Derek Teo said fire insurance for private dwellings is valid if the premises are used only for residential purposes.PHOTO: GIA

OCCUPATION OF PREMISES

Fire insurance for private dwellings is valid if the premises are used only for residential purposes.

If the owner wants to use it for business purposes, it is advisable to notify the insurer, said Mr Derek Teo, chief executive of the General Insurance Association of Singapore.

HOME CONTENTS COVER

Note that a home contents policy usually imposes a monetary limit per item insured. For example, it could be $2,500 or $5,000 per item.

This means that the insurer will pay no higher than that, even though the actual replacement value could be more.

Mr Teo said: "So if you have a single expensive household item or furniture which may form a substantial percentage of the overall sum insured, it is better to declare this to the insurer at inception of the policy to ensure full protection.

"Otherwise, if a loss happens, the maximum you may claim under the policy is the per-article limit, even though the actual value is much higher."

Ms Koh Yen Yen, Sompo Insurance Singapore's chief distribution officer, pointed out that for personal effects/contents, besides the per-item cap, there is an overall limit (typically one-third of total contents sum insured) on valuable items such as jewellery.

"There are options to increase the limit for specific items (for example, an expensive watch) or you can choose a worldwide coverage for some of your personal effects so that you will be protected when you wear these items outside of the home or when travelling overseas," she added.

ADEQUACY OF COVER

Mr Teo advised home owners to peg the sum insured on the reinstatement basis of the building.

"By insuring to full reinstatement value, policyholders will not be penalised for under-insurance," he said.

One issue that Mr Nehemiah Neo, managing director of insurance loss adjuster Insight group, encounters rather frequently is that when fire insurance is taken up for a house, the owner will base the sum insured on the amount of the bank loan, when he should base the sum insured on the reconstruction cost of the building.

When the bank loan is less than the reconstruction cost of the building, the owner would be deemed to have underinsured his house. The insurer will then apply a proportionate approach when it comes to claims, such as making the owner bear a proportionate amount of the reinstatement cost of the building.

Mr Neo cited an example of a home owner who had insured his two-storey terraced house for $200,000 (based on the amount of the bank loan), when the reconstruction cost for the building was $500,000.

After a fire, the reinstatement cost of the building amounted to about $100,000, but the claim was ultimately settled for $40,000.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on December 11, 2016, with the headline 'What to look out for'. Print Edition | Subscribe