Never Trust what the bank says about insuring a house loan.
Never trust what the bank says about insuring on a house loan on fire insurance. Don’t take the bank for granted. Let us dive in, looking at two different scenarios.
After signing the Sale and Purchase agreement with a developer with a ten percent deposit for a two-floor terraced house, a young newly wedded couple was over the moon.
Never Trust what the bank says about insuring a house loan
The bank officer says they need to take ninety percent of the housing loan on fire insurance. They duly agreed on the sum insured, i.e., $270,000.00
As they are young and still paying the education loan, they move into the new house without any major renovation, just ten thousand on a kitchen cabinet, and purchase some simple electrical appliances. They enjoy the new environment with friendly neighbors.
The house blazed to the ground due to some illegal wiring tampering, overloading of the current supply, and a short circuit. Like most laypeople, they thought that the insurer would pay them $270,000.00. The final settlement of the claim was only amounting to RM200,000.00. Why is that so? They are puzzling, and gossip about the insurer cheated their money.
Never Trust what the bank says about insuring a house loan
Another businessman took a fifty percent margin of financing his semi-detached house purchased from a developer valued at one million dollars. He signed for the half-million dollars fire insurance from the bank.
It was such a coincidence his house was next lane to the newly wedded couple. This businessman spent another half-million on an extensive renovation to befit his social status. Indeed, a wise man took up another half-million-dollar fire insurance from his closed associated with another insurer.
Never Trust what the bank says about insuring a house loan
After the fire broke out, his house was gazed to ash due to the hot, dry summer.
The bank insurer settled his claim for Three hundred fifty-five thousand only.
As for the renovation brought from his associated for renovation, the payment was the total amount.
The same bank, insurer, and exact location make the vast difference in claim settlement.
Here is the crucial principle of insurance. i.e., indemnity.
According to the indemnity principle, an insurance policy cannot compensate policyholders for more than their actual financial loss. If the policyholder’s financial situation had not been affected, they would get a benefit equal to the amount of the loss.
The principle of indemnity ensures that the insured will be compensated for their losses but will not profit from an accident or claim. You won’t get anything less than what you need to get back on your feet.
Never Trust what the bank says about insuring a house loan
In the first case, the bank over-insured the house for the young couple, whereas in the second case, the house was under-insured. Who is the intermediary for the insurer that none other than the bank wrongly advises their client? A lesson learns, don’t the what the bank word as gospel.
In a nutshell, it is simply common sense that the land property can burn the land to the ground when a fire breaks out. Firstly, we should go minus ten percent of the total purchase price as a rule of thumb.
Secondly, what is the profit margin of the developer? It all depends on the location and type of material used in constructing a building. It varies from twenty to forty percent of the total purchase.
Let us assume that 30% is the developer’s profit margin, i.e., ninety thousand. The actual sum insured would be two hundred and ten thousand only.
Never Trust what the bank says about insuring a house loan
Let us put it another way, if, after two years, the young couple decides to sell their nest for half a million, the new owner still must insure for two hundred and ten thousand only (assuming no inflation here). The insurer would ignore the market speculation to reinstate the burnt house as before. Indemnity would ignore the profit gain element.
In the second case, the insurance average law applies here. It is a clear cut under insurance. 500,000 over 700,000 x 100%= 71%. Thus, the final claim is 500,000 x 71%= 355,000.
It is always advisable to purchase another policy for the extensive renovation work—the bank has no interest in covering your extra out-of-pocket money. Like fits the iron grill or stainless-steel auto gate.
Never Trust what the bank says about insuring a house loan
As for the home content, cover fire and thief under householder or home content policy. If you hire a maid at home, it is better to ensure a full thief policy instead of an ordinary burglar policy.
Don’t forget to add a rental clause even if the owner occupies their own home. If the house gazed to the ground, you need to rent a similar place for two years before getting a newly completed house.
Likewise, it is the same for non-owner occupied. Perhaps, you rent it out. No rental collects after a fire. The amount would be how much you need to rent a similar home. If it is one thousand dollars a month, add twenty-four dollars as the sum insured.
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