CUT AND KEEP
MARCH 7, 2014
C
ontrary
to road insurance which is mandatory in order to operate a
vehicle, property insurance is not imperative to owning a home. It is only
a requisite if the home is financedwith a loan. The objective of property
insurance is to cover the loan amount. So in a case of a property costing
RM400,000, if a loan of only RM300,000 is taken, the insurance coverage will
only cover the sumof which the loan is taken i.e. RM300, 000. In the case of a
claim, say due to a fire, the insurance company is required to compensate the
homeowner based on the sum insured or market value of the property at the time
of the loss, whichever is lower. If in this case, the rebuilding cost is RM500,000,
in the event of a claim, the insurance companywill apply the principle of average.
So if the loss amounts to RM200,000, the average principle will be calculated
as follows:
Please email your feedback and
queries to:
Sum insured
RM300,000
Rebuilding cost
RM500,000
x
Loss
RM200,000 = RM120,000
Property
insurance
>Facts and intricacies
This means the insurance company
will only pay RM120,000 instead of
RM200,000 for the loss. According to the
Persatuan Insurans AmMalaysia (PIAM),
many homeowners are victims of being
underinsured. “The tendency of many
homeowners is to leave the insurance
arrangements to the financial institutions
which provide the loan. Unfortunately,
this leaves the homeowners completely
unawares of whether they are adequately
insured,” says PIAMchairman Chua Seck
Guan. In fact, it is advised to do a yearly
reviewof your property and possessions
before renewing the policy. On the other
hand, depreciation costs should also be
taken into account to avoid payingmore
than necessary.
Types of Property Insurance
There are three types of property
insurance for homeowners: fire,
houseowner and householder insurance
or content insurance.
Fire insurance
Designed to provide protection against
material damage to properties such as
buildings, and contents such as household
equipment, fixtures and fittings. The
policy covers the loss or damage caused
by fire and lightning or damage caused by
explosion of domestic boilers or gas used
for domestic purposes. However, the
policymay be extended to cover other
perils such as riots, malicious damage,
aircraft damage and impact damage
(excluding own vehicle, bursting and/or
over flowing of water tanks, apparatus and
pipes, earthquakes, volcanic eruption,
hurricane, typhoon, cyclone, windstorm,
flood and subsidence and landslip.
Houseowners’ insurance
A comprehensive insurance policy
specially designed for owners of
residential properties. It covers the
building against loss or damage caused by
all the perils covered by the fire policy
except riots, strike andmalicious damage
and subsidence and landslip, except as a
result of earthquake or volcanic eruption.
In addition, the policy also covers theft
but only if accompanied by actual forcible
and violent entry, loss of rent if building is
damaged and rendered uninhabitable and
the insured’s liability to the public in respect
of bodily injury and damage. This policy
may also be extended to cover riots, strikes
andmalicious damage and subsidence
and landslip.
Householders’ insurance
It is almost identical to houseowners’
insurance but the protection covers the
contents and not the building. This policy
would also be appropriate to persons
who rent, as the landlord’s policy only covers
the building and not the possessions of
the inhabitants.
Indemnity vs Reinstatement
For strata-titled properties such as flats, when
choosing property insurance, it is important
to understand the terms of indemnity and
reinstatement. The outcome of a claim
depends on it. On the basis of indemnity,
compensationwill cover the cost of repairing
the damaged building after considering wear
and tear plus depreciation. If it is on a
reinstatement
value basis, the
policy holder will
be compensated
without deduction for
depreciation of age or wear
and tear. This means the
full cost of repairs or replacement
(subject to sum insured) will be covered by
the insurance company.
Strata-Titled Property Insurance
For strata-titled properties such as flats,
apartments and condominiums, it is
mandatory for themanagement corporation
to purchase fire insurance for the whole
building. In return, the respective unit owner
is required to pay themanagement their
premiumportion. If the unit is purchased
through a loan, by requirement, the unit
owner is expected to obtain an insurance
policy. However, an exception applies for
homeowners who have obtained a loan
froma financial institution under Bank
NegaraMalaysia’s supervision. In that case,
the unit owner is not required to buy another
insurance policy, subject to certain terms
and conditions. The unit owner simply needs
to obtain the individual certificate of the
master policy from themanagement and
present it to the financial institution as
evidence of insurance.
Ways you can be under-insured
You are under-insured on your property insurance if:
• The insured value of your house is less than the market value or
rebuilding cost of the house (excluding cost of the land)
• Current insurance policy does not provide for inflation
• If you have not taken into account and reported any recent
renovations or improvements to your home over the years
(such as additional roomor remodeled kitchen)
thus adding to the insured value
• You have not taken a periodic inventory of all your possessions. When renewing your
householders’ insurance, it is advisable to taken an inventory of all your possessions.
This list will adequately reflect howmuch coverage is needed to replace all the
contents in your home
• You may also be underinsured, if you do not take up additional coverage for
valuable items such as artwork, jewellery, antiques or collectibles. For this instance,
an “All Risks” insurance policy can be effected to cover the valuables on an
indemnification or more usually on an ‘agreed value’ basis against any loss or
damage. The ‘All Risks’ cover has a list of specified exclusions.
Unit owners who have taken a loan under a
financial institutionwhich is not under the
supervision of BankNegaraMalaysia, can
negotiate with the institution towaive the
second insurance requirement. “Individual
unit owners maywant to consider purchasing
additional insurance to cover other perils
such as flood, subsidence and landslip etc.
that may not be taken by themanagement,
including insurance cover for the contents
of your unit.”
Making A Claim
In the case of property damage or loss, the
homeowner must notify the insurance
company inwriting with full details as
soon as possible. The claimmust include
supporting documents. In this case, the
more information given on the damaged
items ie. description of each item, date of
purchase and purchase price, photographs,
the faster the claimcan be settled. When
property damage or loss occurs and there are
measures that can be taken tomitigate further
loss/damage, the homeowner is required to
see to it immediately. The receipts from the
repairs should be kept as part of your claim.
Estimates should be obtained for repairs of a
permanent nature and sent to the insurance
company for approval before commencing
with repairs.
Did You Know?
The origin of property insurance can be
traced to the Great Fire of London in
1666 which claimedmore than 13,000
homes. From that point on, insurance
progressed “from a matter of
convenience to one of urgency”.
However, it was not until 1681 that the
first fire insurance company was
founded by economist Nicolas Barbon
and eleven associates. They
established the first fire insurance
company called the “Insurance Office
for Houses” at the back of the Royal
Exchange to insure brick and frame
homes.
When purchasing
property insurance:
Do
• Ensure that you have insured your
property adequately, taking into
account the renovations and
enhancements made to your property.
• You should disclose fully all material
facts/information required in the
proposal form.
• Read and understand all the terms and
conditions of the policy.
• Be punctual in the payment of your
premiums as your policy may be
cancelled if payment is not received
within the stipulated time allowed in
the policy.
Don’t
• Do not sign blank proposal forms.
• Do not over-or under-insure your
property.
• Do not hide true details or information
required in the proposal form.
• Do not be pressured into buying
additional coverage you do not require
for your property.
