Buying home insurance: 5 things you need to know

When you’re forking out a large sum of money to purchase, renovate and furnish your home, it can be tempting to remove home insurance from your list of must-haves in order to shave off the additional cost.

But is this the best of ideas? Definitely not – experts recommend that you get some sort of coverage, however minimal, so that you won’t be left unprotected in the case that an accident does occur at home.

HDB Fire Insurance scheme vs Home insurance

You might be thinking: wait a minute, aren’t I already covered under the mandatory HDB Fire Insurance scheme? That’s true, but what many homeowners don’t know is that the Fire Insurance scheme only covers damage to the physical structure of the flat – it doesn’t allow you to recover any cost attributed to your renovation work and/or home furnishings.

So let’s say there’s been a fire at home (touch wood)! A homeowner who’s only covered under the HDB Fire Insurance scheme can only claim for the losses related to the physical structure of the flat.

A homeowner who’s covered under an enhanced home insurance scheme, on the other hand, will be able to claim for losses related to the physical structure, renovation works, physical household items and personal belongings. Bearing in mind that 16 buildings in Singapore have recently been found to have cladding that does not adhere to fire-safety standards, we think it’s better to err on the side of caution.

Types of home insurance available

Home insurance policies are typically classified as either Insured Perils Policies or All Risks Policies. The former provides homeowners with coverage against losses from a specified list of incidents such as fire, explosion, theft by forcible entry, natural disasters, and the like. The All Risks Policy, on the other hand, affords homeowners with wider coverage, and is applicable to all scenarios with the exception of certain pre-determined exclusions.

What type of losses can be claimed under home insurance?

As a general rule of thumb, insurers will not reimburse homeowners for losses related to damage caused by insects, damage inflicted during renovations, intentional and wilful harm to your property by family members, and general wear and tear of your home.

For those who have jewellery, art, or other expensive items at home, you can purchase home insurance that will cover you against the losses of theft or damage to your valuables. Depending on the specific policy you purchase, there will be a limit as to how much your insurer will pay out in the event of a claim.

As a benchmark, Aviva offers three home insurance policies (Home Lite, Home Standard and Home Plus) which will pay out a maximum of S$35,000, S$50,000 and S$100,000 respectively for loss of valuables.

What is the “average clause” included in home insurance policies?

If your home insurance policy comes with an “average clause” (also known as underinsurance), this means that your payouts are subject to the value of your property (as opposed to the amount you’ve insured it for). This means that if your insurer discovers that the sum insured on your policy is less than the actual value of your contents or the rebuild cost of your property, your payout might be reduced when you file your claim.

The clause exists to ensure customers accurately declare the true value of their contents and property, so that they pay the correct premiums.

This can get a little confusing, so here’s an example to help illustrate the point:

For example, the value of your residential property is S$1,400,000, but you’ve insured it for S$1,000,000. If you’ve suffered S$600,000 worth of losses due to whatever reason, your insurer will not pay out the full sum of S$600,000, under the average clause.

Under the clause, your insurer would only pay out 50% of the S$600,000 losses claim (S$300,000), because you were only insured for, say, half (50%) of the total value.

The insurer was, in effect, only getting half the premiums they should have been receiving from you to fully cover your contents. So consequently, you’ll only receive half the amount of your claim.

Is home insurance expensive?

Similar to life insurance plans, the premiums you’ll have to pay for your home insurance will climb in accordance with the insured amount and claim limits. That having been said, it’s not costly to get a basic plan from a provider such as NTUC income.

If you’re looking at home insurance for HDB flats, NTUC Income’s yearly premium for their Standard plan ranges from S$35 to S$75 based on the size of your flat; if you’re living in private property, you can expect to pay between S$121 to S$355 for your Standard plan.

You’ve already spent so much time, effort and money on renovating and furnishing your home – so it’s worth it forking out that extra amount to make sure that you’re protected in the case of an accident.

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What type of home insurance did you buy? Let us know in the comments section below.

For more information on home insurance, be sure to check out our article, 5 things about home insurance we’re sure you didn’t know.