Fire insurance vs Home content insurance vs Mortgage insurance
When a customer took up a home loan from the bank, he will be entitled to 1st year free fire insurance. For this free fire insurance, what does it cover?
Generally, it only covers the structure of the property. This means that if your property structure is severely damage (non livable condition) then you are able to claim up to the current valuation of the property. The claim rate for this kind of insurance in extremely low as Singapore is a very safe country with no nature disaster or terror attack that will eventually destroy the structure. Take note that some fire insurance exclude natural disaster claim.
Some banks are being more generous. Beside the fire insurance, they also provide home content insurance for their customers. Home content insurance will pay for the damage or loss of customers’ possessions located within the house. Usually the coverage for home content insurance is from 5k to 10k.
Mortgage insurance covers the life of the insured. Should the insured suffer from death or totally disabled, the outstanding home loan will be fully paid off of the insurance company. If the home loan is taken up by 2 people, Mortgage insurance allows coverage of both applicants.
Advantage of Mortgage Insurance
- Affordable premium for the coverage of both life (generally the premium is more affordable compare to term or life plan)
- If death occurs to either insured, the payout (outstanding loan amount) will be paid to the joint insured (he/she can choose to keep or pay off the outstanding home loan)
- This insurance coverage is portable – this means if you ever do a refinancing to another bank, the coverage will not be affected.
- Flexibility to terminate anytime
- Usually the last few years of the premium is free
Disadvantage of Mortgage Insurance
- Reducing coverage – as the objective of the mortgage insurance if to cover the outstanding home loan, the coverage is on a reducing term.
- Only 1 claim – should both insured suffer from death, only 1 claim of the total outstanding loan is allow.
- No cash value – the insured is mainly paying for the protection. At the end of the policy, the insured does not get back any cash from the insurance company.
This article is for reference only. You should always check with your banker or insurance agent regarding the type of insurance that is more suitable for you.