Home safe home

Private houses with blocks of HDB housing flats in the background around Holland Road.
Private houses with blocks of HDB housing flats in the background around Holland Road. PHOTO: ST FILE

How insurance can protect your investment and loved ones if property is damaged or death or disability strikes

Many of us take the safety and security of our home and its contents for granted. As a result, we might have no insurance at all - or if we do have a policy, it's inadequate.

A common misconception is that you do not need other types of home insurance, such as a mortgagee interest policy (MIP) or home contents insurance, if you are already protected by the Housing Board or condominium management's fire insurance.

An MIP - which protects a bank's financial interests - is a form of insurance that some financial institutions, such as DBS Bank, require their home loan customers to buy.

Ms Tok Geok Peng, executive director of secured lending at DBS, said that an MIP helps protect the bank's financial interests, especially when there is major damage arising from a fire or flood.

An MIP is not a requirement at OCBC Bank or United Overseas Bank for home loan customers.

UOB requires customers to take out a fire insurance policy that covers them for damage to their homes, loss of rent, and removal of debris in the event of a fire. This ensures that their clients' property investments are protected.

The Sunday Times outlines the types of home insurance cover available to home owners.

Mortgagee interest policy (MIP)

WHAT DOES IT COVER?

An MIP covers loan default by the home loan customer should insured events occur. The insured sum is based on the reinstatement value or outstanding loan amount, whichever is lower.

It is not compulsory. Some banks might require you to take out an MIP if your private apartment or condominium is mortgaged to them.

It covers the outstanding property loan amount, and allows the bank to claim for repayment of this sum in the event of damage to the property due to an insured event (such as a fire) and where the bank has concerns over your repayment ability.

You remain liable for the outstanding amount. If there is a claim by the bank for full repayment of the outstanding amount, you need to repay this sum to the insurer. If the bank claims partial repayment of the outstanding amount, you need to repay the insurer for the sum claimed by the bank, as well as the bank for the remaining outstanding loan amount.

  • Did you know....

  • Despite the significant sums that Singaporeans spend on buying and renovating their properties, many do not protect their investment with insurance coverage.

    One factor could be a lack of understanding about home insurance and what it covers.

    The most common types of risk exposure for Singapore homes include damage from fire or water and theft. According to AIG claims data for last year, water damage accounted for 31 per cent of claims, fire damage for 13 per cent and theft for 3 per cent.

    Yet, many people here are not familiar with the risks associated with homes, or the insurance policies that they can purchase to protect themselves and their properties.

    The survey also revealed that 47 per cent of Singapore home owners think home contents insurance is the same as fire insurance. And 75 per cent believe mortgage or fire insurance will cover the loss of their home contents should a fire, flood or mishap occur.

    These misperceptions present risks, as many home owners could be left out of pocket in the event of any major damage to their homes.

DBS has partnered insurer MSIG to provide MIPs to its customers. This scheme includes home contents coverage against fire damage and loss due to theft as well. DBS helps customers arrange for MIP coverage, and the insurance premiums are deducted automatically from the customer's account.

MIP VERSUS MCST FIRE INSURANCE - HOW DO THEY DIFFER?

IS THERE DOUBLE COVERAGE?

Your condo's management corporation (MC) takes out a fire insurance policy to cover the private apartment or condominium estate. Your unit is covered under this policy, commonly referred to as the MCST fire insurance policy.

The policy is required under the Building Maintenance and Strata Management Act for all private apartments or condominiums.

If a private apartment or a condo unit is damaged by fire, the property's MC will make a claim on the policy and use the insurance proceeds to repair the property. The policy does not cover improvements or renovations made to your unit, or contents within your unit.

The MIP serves a different purpose - to protect a bank's financial interests. It protects the outstanding property loan amount, and lets the bank claim for repayment of the outstanding amount should damage occur to the property due to an insured event (such as a fire) and where the bank has concerns over your ability to repay the loan.

Depending on the policy terms, the insurer might pay the outstanding loan amount to the bank. The borrower is then required to pay that sum to the insurer.

Mortgage insurance

WHAT DOES IT COVER?

Mortgage decreasing term insurance typically covers death and total and permanent disability of the insured up to a maximum equivalent to the outstanding mortgage loan value.

Financial experts say a home is the biggest investment that most people make in their lives and is usually the most treasured.

Mr Alistair Giles, who heads protection at Prudential Singapore, said: "It is important for home owners to have mortgage insurance to ensure that family members are not burdened by a hefty home loan and can continue to live in the home in the event of an unexpected death.

"Mortgage insurance, such as PRUmortage, works by covering the outstanding balance of a home loan, in the event that the mortgagee passes away, providing peace of mind and a home to the loved ones who remain," he said.

Ms Tok at DBS noted that the mortgage insurance payout would help ease the financial distress for family members left behind, especially if the insured borrower was the sole breadwinner.

Home owners can also consider purchasing level term insurance policies, such as AIA Platinum Term and AIA Secure Term Plus, which ensure that, should an unfortunate event occur, the mortgage repayment obligation would be matched. Depending on the MIP's interest rate, over the years, the coverage it provides might not cover the outstanding loan in full. Level term insurance avoids this by providing a level coverage amount.

AIA Singapore encourages home owners to consider purchasing level term insurance such as AIA Platinum Term and AIA Secure Term Plus. Home owners thinking of taking out another mortgage would benefit from level term insurance as any "excess" coverage over and above the outstanding loan amount can be used to partially cover the next mortgage loan.

The excess coverage would also be helpful in covering protection gaps since individuals might have greater financial responsibilities as they enter various life stages, such as when they start a family.

HOME PROTECTION SCHEME (HPS)

The Home Protection Scheme (HPS) - administered by the Central Provident Fund (CPF) Board - is mortgage reducing insurance that protects flat owners from losing their HDB flat in the event of death, terminal illness or total permanent disability. HPS insures owners up to age 65 or until the housing loans are paid up, whichever comes earlier.

HDB flat owners using their CPF savings to pay for the monthly housing instalments are required to be insured under HPS. Owners using cash to pay the instalments are not required to be insured under HPS, but are strongly encouraged to do so.

According to the CPF Board, total permanent disability refers to the inability to take part in any employment permanently, or the total permanent loss of the physical function of both eyes, two limbs or one eye and one limb of the insured.

Claims for terminal illness and total permanent loss of the physical function of both eyes, two limbs or one eye and one limb can be admitted only for conditions occurring on or after May 1 last year.

The amount to be insured depends on the flat owner's need for financial protection, which should match his declared share of repayment of the monthly housing instalments. This can be up to a maximum of 100 per cent of the outstanding mortgage loan amount.

For claim events that occurred before May 1 last year, the lower of the outstanding loan amount or the sum assured will be paid. For claim events occurring on or after that date, HPS will pay the sum assured of the insured.

Fire insurance

Home owners with a mortgage on their property are usually required to take out fire insurance for the reconstruction cost of the building.

Fire and extraneous perils are typical risks covered in a fire policy. Examples of extraneous perils include earthquakes, lightning, windstorms, floods, riot and strike damage, landslides, smoke damage, sprinkler leakage, explosions, and water damage due to an overflowing or bursting water tank.

"Depending on the type of properties they live in, home owners should ensure that they are not left unprotected even when their loan is fully redeemed," said chief distribution officer Koh Yen Yen at Sompo Insurance Singapore.

IF YOU OWN AN HDB FLAT

HDBis responsible for providing cover only for fire damage to common areas. The HDB Fire Insurance Scheme insures the unit for the cost of reinstating damaged internal structures and fixtures, as well as areas built and provided by HDB, but excludes additional renovations done to the unit and household contents, noted Ms Koh.

If you are an HDB flat owner with an HDB loan commencing on or after Sept 1, 1994, you are required to buy and renew the HDB fire insurance for your flat with HDB's appointed insurer as long as you have an outstanding HDB loan.

Even if a flat owner is not required to do so, he or she can still buy HDB fire insurance on a voluntary basis.

IF YOU OWN A PRIVATE APARTMENT WITH STRATA TITLE

The management corporation - or the property developer if the management corporation has not been appointed - is responsible for insuring the entire property against fire damage. If the property is damaged, the management corporation or developer would then claim from this insurance policy.

If home owners have made any improvements and/or renovations to the property, these would not be covered by the policy.

IF YOU OWN A LANDED PROPERTY

The cost of reinstatement for landed property would come to much more than for other types of property because of the size of the property, the quality of the materials used and the more extensive fixtures installed.

Ms Koh pointed out: "Without a fire insurance plan from HDB or the management corporation, landed property owners should consider fire insurance and additional coverage even after the loan has been fully redeemed."

Home contents insurance

Many home owners neglect to purchase insurance cover for their renovations, fixtures and fittings, as well as home contents.

Renovations, fixtures and fittings include additional carpentry work, installations, lighting and air-conditioning units fitted inside a home. Home contents include furniture, electronic and electrical equipment, kitchenware and personal effects belonging to home owners and family members.

Ms Koh believes the take-up rate is low partly because some home owners are unaware that these items are not covered by compulsory insurance required by the bank or policies taken out by the management corporation.

Ms Tok at DBS advises those who have spent considerable effort to renovate their homes, or who have precious assets such as paintings and antiques at home, to consider home contents insurance. The product provides coverage against certain risks such as destruction of contents due to fire or flood and even loss due to theft.

Contents typically include furniture and appliances such as the fridge, cooker, TV set and computer, as well as smaller items such as jewellery and handbags. The sum insured is based on the estimated value of the fittings and furniture, and valuable items.

Home owners can choose to insure their building, renovations, fixtures and fittings, and home contents for "fire and insured perils", or opt for a more comprehensive "all risks" cover, added Ms Koh.

For an additional premium, "all risks" cover provides for accidental loss or damage - for example, if a child accidentally drops and damages a mobile phone, or water used to put out fire in a neighbour's home flows into your home and damages its interior and contents.

Ms Koh said: "A more comprehensive home insurance policy would offer inconvenience coverage, emergency home assistance services, worldwide family liability, and even the cost of tracing and accessing water seepage.

"For example, Sompo's HomeBliss provides unique benefits such as a 24-hour home emergency assistance service with unlimited activation, and pays for the first $100 in repair costs incurred."

Ms Fiona Xu, who heads personal property and affluent clients at AIG Asia Pacific Insurance, said its Premier Client Solutions policy aims to meet growing demand from affluent home owners seeking greater protection for their high-value homes and unique collections.

These policies provide tailored insurance solutions that aim to minimise disruptions to a home owner's lifestyle, provide customised limits for treasured valuables, and offer access to experts to help resolve problems.

Do note that home insurance plans usually have an "average clause" that takes effect if you are under-insured. The principle behind it is that insurers can reduce payment on a claim by the percentage that you are under-insured.

A version of this article appeared in the print edition of The Sunday Times on July 09, 2017, with the headline 'Home safe home'. Print Edition | Subscribe