Sunday, January 27, 2008

Insurance on a landed property

Dear Mr. Tan,

I recently bought a landed property for $1.5 million. Do I need to buy fire insurance for the entire sum? If I insure for a lower sum , can I claim up to the amount that I have insured for?

REPLY

You only need to insure for the replacement cost of the building, excluding the cost of the land. For a landed property in Singapore, the land cost is higher than the building cost, so you only need to insure for about half of the purchase price. A good rule of thumb is to multiply the build in area of your house by (say) $200 to $300 psf, depending on the quality of finishes.

If you insure for less than the replacement cost, you are considered to be the co-insurer for the uninsured portion. For example, if the replacement cost is $800,000 and you insure for only $600,000, you are deemed to be the co-insurer for the remaining $200,000, i.e. 25% of the property. In the event of a loss, you can only claim for only 75% of the loss.

Make sure that your property insurance cover fire and other perils, such as lightning, explosion, collision, windstorm, bulgary, flood and natural disasters.

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