We have all been advised to buy insurance more than once – for car, life and health. However, If you are a first-time homeowner, chances are you have neither heard about home insurance or even considered insuring your home against unforeseen disasters. Even if we do hear about home insurance, we oftentimes shy away from buying a simple home insurance policy, thinking why do I need to insure my home if I can manage the risks?
As a general rule, home insurance is a way of managing your property risks. When you buy into a home insurance policy, you transfer the risk of potential loss to the insurance provider for a fee, known as a premium. When disaster does happen, your loss is hedged and covered by the insurance provider
Since your property is a valuable asset with potential for passive income in the long term, it is sensible to have home insurance to manage those unforeseen risks, such as damages caused by fire or lightning, burst pipes, and many other possible disasters.
1. What are the different types of home insurance?
When it comes to home insurance, there are 3 main types of insurance to consider, each with its’ varying levels of coverage and premiums.
- Basic Fire Insurance
- Homeowner Insurance
- Householder Insurance
#1 Basic fire insurance
As the name states, basic fire insurance is the simplest policy that covers your home from damages caused by fire or lightning.
Basic fire insurance provides coverage on the value of your home against damages caused by fire and lightning. The policy coverage can also be extended to include special disasters such as flooding, earthquakes, explosion and bursting of water pipes, for additional premium.
To put it simply, if you have a basic fire policy on your home, you are covered for the value of the building and not the contents within it. If a fire scorches your home, the policy will allow for claims to rebuild the home to the state it was before the fire. However, the contents, pipe fittings and fitted furniture within the home are not covered.
While this policy only covers against the basic cause of damages, fire and lighting, there is a range of add-on that covers the extraordinary cause of damages such as storm damage, flood damage and bursting of water pipes.
#2 Homeowner insurance
A step up from basic fire insurance is the homeowner insurance.
Homeowner insurance provides for more coverage as compared to basic fire insurance. This policy provides coverage for the physical structure of the home, such as roofs, fixtures, fittings, and etc against severe weather damages and a range of other unforeseen circumstances that can destroy your home.
#3 Householder insurance
For general understanding, the householder insurance covers your household contents and includes coverage for fatal injury to the policyholder. This is the step up from the homeowner insurance which covers your home physical structure and fixtures.
What this means is, if there is a fire that blazes through your home or in any other insured circumstances, the contents within your home, the furniture and the valuables are recoverable as part of the policy. As for the value of the compensation, it depends on the basis of compensation for your householder policy, whether it is on reinstatement or the replacement value.
#4 Homeowner and householder insurance policy coverage
The homeowner and householder insurance provides coverage against damages or loss to your building and contents (depend on which policy you choose), caused by any of the following events,
- Fire, lightning, thunderbolt, subterranean fire
- Explosion
- Aircraft and other aerial devices (and articles) dropped from the sky
- Impact by third party road vehicles or animals not belonging to or under the control of the policyholder and family
- Bursting or overflowing of water pipes
- Theft – only if it is a forced and violent entry, into or out of the home, or any attempt threat to do so
- Earthquake and volcanic eruption
- Flood – but not covering damages caused by sinking land or landslide
Typically excluded in the policy coverage, but can be covered with additional premiums,
- Subsidence, or sinking land caused by water erosion
- Landslip or landslide
- Riot, strikes and malicious damages
2. What are the types of compensation for home insurance?
There is two basis of compensation for your home insurance policy. After ensuring the sum insured to rebuild or replace your home contents, it is important to decide if you want to be compensated on a reinstatement basis or indemnity basis.
#1 Reinstatement basis
For the reinstatement basis, the policyholder will be reimbursed for the full value of repairing damages, reinstating you to the condition before the disaster, without any deductions for wear and tear or depreciation.
#2 Indemnity basis
For the indemnity basis, the policyholder will be reimbursed for the cost of repairing damages after deducting for wear and tear and depreciation.
3. Is it compulsory for me to get a home insurance?
It is technically not compulsory for homeowners to have a policy to cover their homes. However, if you are taking a mortgage loan on your property, chances are you are required by the bank to have a fire insurance policy on the outstanding loan amount.
If you are staying in a strata-titled property, it is required of the management team (JMB) to take up insurance under a master policy. As homeowners, it is best to have a copy of your individual certificate of insurance to check the coverage taken up under the master policy.
4. How do I choose a suitable insurance policy for my home?
Choosing a suitable insurance policy for your home is actually quite simple. In my opinion, it is about prioritizing the major repairs or replacement cost for your home while considering the additional add-ons for some of the contents you have.
Here is a quick way to help you get started on shopping for a suitable policy,
- Estimating the cost to rebuild your home
- Choosing the suitable coverage
- Picking the right insurer and reading the fine prints
- Negotiating for reduced policy premium
#1 Estimating the cost to rebuild your home
Following the 80/20 Pareto Principle, you want to focus on a policy that covers for the majority cost to rebuild your home. In that perspective, you want to consider the cost of the following,
- Rebuilding cost for your home in the case of a major fire
- If you’ve renovated your home, do take into account how much was spent to enhance your home
- If you’re considering to insure the contents in your home, consider the big ticket items or assets that is costly to repair/replace
In my opinion, it is more important to focus on the cost to rebuild the home and the latter renovation. These are some of the major equity sunk into having the home habitable. On the flip side, I am not too big a fan when it comes to insuring my home contents. The cost of furniture are depreciable and I believe it is a diminishing return if insured.
#2 Choosing the suitable coverage
This is the juncture where you will have to decide either to take the basic fire, homeowner, or householder policy. We covered this quite extensively the coverage of each policy types and how it defers from one another.
From a property investor’s perspective, what I would do to insure my home is to go for either basic fire insurance or homeowner insurance. I want my properties insured against the negligence of my tenants in case a fire is to happen and I lose the rental property.
When it comes to furniture and home contents, I am already of the opinion that these objects will depreciate in value and I do expect it to go through the cycle of wear and tear. Hence, I do not believe it is worthwhile to have them insured.
#3 Picking the right insurer and reading the fine prints
Always read the fine prints, always! It does not matter what the insurance agent tells you, the terms and conditions written in your policy will ultimately be the binding agreement between you and the insurance provider.
Some of the items you want to consider when going through the fine prints,
- Associated fees and charges
- Insurance coverage, exclusions and limitations
When it comes to choosing an insurance provider, there is a wide selection to go with. In my opinion, it is always best to go with the reputable players as they have better financial backing and track record to honouring policies.
Just to name a few considerable home insurance options,
- Allianz Smart Home Cover
- AIA A-Essential Home
- AIG Standard Home Insurance
- Maybank Houseowners/Householders Insurance
- Great Eastern Easi-Home
- Tokio Marine Houseowners/Householders Insrance
- Etiqa Houseowner and Householder Takaful
#4 Negotiating for reduced policy premium
Insurance is all about hedging your risk against unforeseen circumstances. If you go for the most comprehensive home insurance policy, it becomes too expensive. Hence, it is ideal to find the right coverage and drive a hard bargain to bring your costs down.
Here are some tips and tricks to keeping your policy premium affordable,
- Invest in home safety – Underwritting of insurance is all about the considerable risk. If your property is fitted with safety equipment, insurance providers will give your home a better rating and perceive it as having lower risk against theft.
- Focus on big ticket items – Not everything at home is worth insuring. Big ticket items such as the permanent fixtures, fitted kitchen counter and the bathroom suites are worth insuring. These can easily set you back by tens of thousands if damaged in a fire.
- Avoid unnecessary add-ons – Look, it sounds good to have an insurance coverage against loss of rent but it may not be the case in reality. Looking at the bigger picture, the whole point of having an insurance is to hedge your risk against unforeseen situations. Having add-ons like this is not going to add much value to your top priorities and it is going to cost you significantly more.
5. How do I file for a home insurance claim?
Now that you’ve gotten yourself an insurance policy, there are a few things you should be doing to prepare yourself for the rainy days. It is essentially about keeping good record of your items and having them readily available when a claim is to be made.
#1 Things to do on a regular basis, before a disaster happens
- Make a list of items to be covered – Always remember to include purchase year, model and cost
- Take pictures and keep them save – With technology being so convenient today, keep it in a USB or even on cloud drive
- Keep the bills and warranty card – Bills and warranty cards are good to backup your claim for value. If you say the fitted cabinet is worth RM 40,000.00, having a bill stating so from the furniture supplier is good to prove your case with the insurers.
- Keep your list updated on a regular basis
#2 Immediate actions after a disaster
- Take pictures of the damaged items – If your fitted cabinet is burnt, take pictures and keep a copy. It is proof of the damage.
- Make a list of damaged items to be claimed – Keep it neat, keep it organized. Trust me, it helps with the claim process.
- Reach out to your insurers to apply for a claim – If you do not tell them about your situation, the insurers will not know about it.
- Check with your insurers the items covered in the claims – You will want to think twice before authorizing repairs for an item not covered in a claim. Hence, having that list of approved items in the claim is good before you start any repairs.
#3 Filing for an insurance claim
- Submit your claims to your insurance provider – Do include pictures and details of the incident. All supporting information and documentation will be helpful.
- Work with your insurance provider on the investigation and inspection – Your home is damaged, work with them and move the investigation forward. There is no need to be on opposing team when you want to resolve the issue as soon as possible.
- It is time to fix up – Keep record of all your repairs bills for reimbursements.
Final Words
Insurance is all about hedging risk against unforeseen circumstance. It is not compulsory but chances are you already have them if you have a mortgage loan.
If you are looking to increase the policy coverage, always work your way down from the big ticket items. It is easy to include everything into the coverage but it may not necessarily worth the premium paid.
If you own a strata-titled property, always get a copy of your certificate of insurance from the management body. It is always good to know the coverage taken up under the master policy and the fine prints that comes with it.
Until then, take care.
