1.          Condo owners! you are paying double premium for fire insurance

When you taking out a loan to buy a condo, the bank will most often charge the premium for fire insurance regardless of whether the property is already insured by the condo management. If the condo management office is efficient, we can request the management office to get the insurance company to put the bank’s name in the policy certificate. Upon presenting the certificate to the bank, the bank will refund you the unexpired(unused) premium.

2.          Why the premium charged by Condo management is lower?

Condo management usually take the construction cost of the condo project as the sum assured. Premium will be apportioned to individual condo unit according to its floor area.Sum assured based on construction costs Premium  x Unit floor area / Sum of all unit floor area The banks usually take the market value of the condo as the basis to compute the sum assured. Therefore the premium charge will usually be much higher.Sum assured based on market price of individual unitsBuilding materials prices have increased over the years; it is more prudent to insure an amount higher than the original construction value, but need not necessarily be same amount as the market price of the unit.

3.          Things to look out for in a fire policy issued by the bank

Very often, we come across banks a few extra coverage, such as land slips and subsidence, flood, aircraft damage, impact damage etc.. You can request to have the irrelevant coverage other than the basic fire to be removed, if you think that the chances of happening are highly unlikely. So please read through the policy schedule and you may save yourself half the premium cost.

4.          Informed both insurers if you have 2 policies covering the same property

Generally, the terms in the fire policy of a insurer do not allow the property to be covered by another insurer concurrently. In the event of a claim, both insurers have the rights to consider the policies to be null and void. If you have more than one policy covering the same property, you will need to ensure check the terms of the policies and ensure the two insurance companies are informed about the other.

5.   Insure the cost of rebuilding, not the market value

We insure the cost of rebuilding and not the market value. Market value will usually be higher than the actual cost of building the house because the former includes land value, therefore the extra premium that you pay will be unnecessary.

6.   Exclude cost of foundation of terrace houses

Once we get the construction value of the house (usually by a valuer) it is advisable to exclude the cost of the foundation. As in normal circumstances, a fire can destroy the whole house but not the foundation. This is important, because in the event of a claim, the loss adjuster will deduct the cost of foundation from the total sum insured. This is usually about 10%-15% of the value of the construction of the house. After deducting the cost of foundation, the owner may be at risk of under insuring his property.

7.          Include cost of removal of debris

We need to include the cost of removal of debris and professional fees in the sum assured as the amount can be quite high. The cost of removing the debris for an entire terrace house and the professional fees can hit 15% of the total rebuilding costs.

8.          Don’t rent out to more than 3 separate tenants

If the house is tenanted, there should not be more than 3 separate tenants. In the event of a claim, the insurer will not pay. This is very common in the housing area near a college. Therefore is advisable to deal with a single tenant.

9.          Acts of God on parts of property other than the building

In the event of damages on awnings, gates and fences caused by windstorm, it is not covered. These are acts of God, and it is not insurable. Damages caused by similar events on the building are covered under the storm and tempest extension clause.

10.           What happen if we underinsure our house?

In the event of a claim, the following formula will apply. Whether fair or not, it is pre-empted, so please do not underinsure. Compensation for damage will be paid according to the following formular:

·         Cost of rebuilding the whole house RM100k

·         Amount insured RM50k

·         Cost of damage claimed RM50k

The compensation will be :

·         Amount insured/Cost of rebuilding x Cost of damage

·         50k / 100k x 50k = RM25k