Fire Insurance Policy Info That You May Not Be Aware

[Misc100 2]

I called up my fire insurance insurer today.

Was rather surprised to get this info:

1. The fire insurance is actually taken by the mortgage loan bank, but the owner of the house has to pay from the 2nd year onwards (the 1st year is free).

However, the beneficiary is the bank. If in the case of fire, and the owner is not able to pay the mortgage loan, the bank can claim from this fire insurance policy. The insurer will claim back from owner later on. The only thing that the owner can claim from this policy is Contents (which is a giveaway from the insurer - only max $10000).

2. The owner cannot cancel this policy as long as the mortgage loan is outstanding.

3. If the owner wish to change insurer, the owner has to pay the bank $200 annual fees to the bank every year.

4. In the event of fire, and the owner has to do extensive replacement/renovation to the unit, the owner cannot claim from this fire insurance policy. I was advised to take up an additional fire/home insurance policy (can be from any insurer), if I need this to be insured.

Edited February 15, 2011 by Misc100

[watchthewaves 0]

I called up my fire insurance insurer today.

Was rather surprised to get this info:

1. The fire insurance is actually taken by the mortgage loan bank, but the owner of the house has to pay from the 2nd year onwards (the 1st year is free).

However, the beneficiary is the bank. If in the case of fire, and the owner is not able to pay the mortgage loan, the bank can claim from this fire insurance policy. The insurer will claim back from owner later on. The only thing that the owner can claim from this policy is Contents (which is a giveaway from the insurer - only max $10000).

2. The owner cannot cancel this policy as long as the mortgage loan is outstanding.

3. If the owner wish to change insurer, the owner has to pay the bank $200 annual fees to the bank every year.

4. In the event of fire, and the owner has to do extensive replacement/renovation to the unit, the owner cannot claim from this fire insurance policy. I was advised to take up an additional fire/home insurance policy (can be from any insurer), if I need this to be insured.

I wonder whether you got your facts correct. Why don't you read the terms in the policy. You have a copy, don't you?

1. Yes, the bank is the beneficiary because it wants to protect its interest - to restore the place back if it is damaged by a fire. It should be that the bank can claim on the policy if there is a fire, regardless of whether you can pay your loan installment or not. You sure the insurer can claim back from the owner?

2. That's probably in your mortgage loan agreement.

3. If there's any such term, probably in your mortgage loan agreement again.

4. Have you checked with your bank on this? Or read the policy?

[leechaorui 2]

...

4. Have you checked with your bank on this? Or read the policy?

Hi Jason,

Typically, the fire insurance policy doesn't cover contents and home owners have to get their own. The fire insurance that the bank make the home owner pay for is only to reinstate the premises to its condition before the fire takes place. The sum insured is the estimated cost of re-instating the building and not the market price of the building.

In general, the premium for fire insurance of class one residential home doesn't cost much but the bank make a handsome commission out of the deal. This explains the reason for the high premium cost of fire insurance protection that is paid by the home owner. If the home owner choose to get the fire insurance directly from the insurer (still putting the bank as the beneficiary) and thereby avoiding the high premium on the fire insurance policy, the bank would lose out on earning the commission. Hence, the bank impose a penalty charge of $200 when the home owner insist on getting from another insurer to compensate for the loss of insurance commission. I was told that the commission earned by the bank for each deal can be in the region of 60% to 70% of the premium.

Cheers!

[watchthewaves 0]

Yes, I am aware of that. My question on point 4 arose because Misc100 stated "In the event of fire, and the owner has to do extensive replacement/renovation to the unit, the owner cannot claim from this fire insurance policy".

Not quite true, because, as you pointed out, the fire insurance with the bank as beneficiary would be used to reinstate the structural works. However, the homeowner has to take care of the rest himself, so good to get another policy to cover what's not covered by the bank's fire insurance.

[Misc100 2]

I wonder whether you got your facts correct. Why don't you read the terms in the policy. You have a copy, don't you?

1. Yes, the bank is the beneficiary because it wants to protect its interest - to restore the place back if it is damaged by a fire. It should be that the bank can claim on the policy if there is a fire, regardless of whether you can pay your loan installment or not. You sure the insurer can claim back from the owner?

2. That's probably in your mortgage loan agreement.

3. If there's any such term, probably in your mortgage loan agreement again.

4. Have you checked with your bank on this? Or read the policy?

For (1) and (4), it is what the insurer has told me.

I wil try to double-confirm with the bank.

thanks!

[Misc100 2]

My mortgage loan is with OCBC and the fire insurance is by OAC (arranged by OCBC as it is a subsidiary of OCBC). The policy is known as Mortgage Interest Policy,

I have spoken at length with both parties.

This is what the policy does:

When there is a fire in my unit, and I need renovations to redo the house, I cannot claim from this policy.

It is during the months when the unit cannot be stayed that OCBC will claim from this policy the equivalent amount of mortgage loan. The polcy will not claim back from me.

So basically I do not have a fire insurance policy although it is given free by the bank for 1st year and mandatory for subsequent years (payment to be made by me).

I have been advised to get an 'additional' fire insurance policy myself.