Is Home Insurance Really Necessary?

Like with any other type of insurance, home insurance can feel like an extra expense, a just in case plan that might never be used. But what if something actually happens? Flooding, fire, theft - these events happen more often than you think. Just last year, there were 970 reported fires taking place in residential buildings. In the same year, there were nearly 2,000 cases of housebreaking and related crime. So, the question remains: is home insurance a necessary safeguard or an avoidable cost? Let's break it all down.

First and foremost, I want to clarify that HDB has its own home insurance schemes, namely the Home Protection Scheme (HPS) and HDB Fire Insurance Scheme, which are compulsory for most HDB flat owners. In the event of death, terminal illness or total permanent disability, the HPS protects you by reducing your mortgage obligations. Meanwhile, the HDB Fire Insurance (provided by FWD) covers fire damages to the flat's structure, fixtures and fittings. Beyond that, you'll need to get protection from a private provider, which typically comes in two types:

1. Insured peril, which covers any damages to your property caused by natural disasters, fire, theft or other mishaps, and
2. All risks, which as the name suggests, offers full protection against all kinds of risks and liability. This includes personal accidents, home-related injuries, water seepage tracking and assessment, personal items, and more.

Basically, the extent of coverage can vary depending on your provider and plan. But generally speaking, the higher the premium is, the more protection you'll get. On top of that, the value and location of your property can also affect your premium.

So do your research and find out the types of coverage offered by different plans and providers. You can compare several options to help you decide which one is best for your needs and budget. But don't choose a plan solely based on the cheapest premium because it might leave you paying out of pocket in the case of an emergency.

More importantly, make sure to read the fine print before signing any documents so you fully understand the policy you are agreeing to. This includes the scope of coverage you will get, deductibles (amount you have to pay out of pocket before the insurance coverage kicks in), and how claims are paid (will your provider pay upfront or reimburse later?).

If you are filing the claim for the loss or damage of a personal item, your provider may pay for either the replacement cost (full cost of replacing the item) or actual cash value (the value of your item when it was lost or damaged). If your plan only covers actual cash value, then you will receive less reimbursement due to depreciation factor.

Some people may get more benefits out of home insurance than others. Check the list below to see if you're one of them.

1. Homeowners with Mortgages: If you have a mortgage, your lender may require you to have home insurance.
2. People who have a lot of valuable items: Home insurance can provide coverage against theft or damage, so you won't have to worry about your electronics, jewellery, artwork, or any other expensive collectibles.
3. Those living in high-risk areas: If you live in flood-prone areas or high-crime neighbourhoods and you just know you will experience damage or losses eventually, home insurance is a must.
4. Families with children or elderly members: Home insurance can protect against accidents at home, so it may be useful for households with children or seniors.

Regardless of your profile as an insurance buyer, you should weigh the pros and cons before making your decision. Here's a simple breakdown.

Home insurance can protect your home and assets against unforeseen circumstances. It offers financial security and peace of mind when something bad does happen. So even though it's an additional expense, the benefits of home insurance far outweigh the cost, making it a wise choice for many homeowners. But ultimately, whether or not you should get home insurance is entirely up to you. But, remember to consider your budget, lifestyle, and risk tolerance before you make your decision so that you don't have to overpay for features you don't need. Don't forget that you can seek professional help to select the best coverage for your needs.

In collaboration with Mr Alfred Chia, BSc, CFP, FChFP, ChFC, SAMP, Affiliate of STEP, IBF Fellow, CEO of SingCapital Pte Ltd

SingCapital is one of Singapore's leading Trusted Financial Advisory firms dedicated to providing quality financial services and solutions for individuals and businesses. Licensed by the Monetary Authority of Singapore (MAS) under the Financial Advisers Act, we are here to be your personal financial consultant, your financial coach, and your guide to achieving financial freedom and more. Please visit www.singcapital.com.sg for more details or contact SingCapital at gi@singcapital.com.sg and 6801 4088.

Views expressed in this article belong to the writer(s) and do not reflect PropNex's position.