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Wise up when purchasing home insurance

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YOUR home is your biggest investment, you need to secure it and there should be no question about it. Insurance is a safety net and you need to insure your home against possible catastrophic damages.

Yet, many homeowners tend to leave it to their banks to purchase a fire insurance policy on their behalf, very often from insurers who are affiliated in one way or another to the financial institutions where they have taken up their housing loans.

While some homeowners see this as a hassle-free service considering that it doesn’t cost a bomb to sign up for fire insurance, they tend to end up paying more than they should, in addition to not getting the right amount of coverage should a disaster strike.

Many homeowners are still unaware that following the liberalisation of motor and fire tariffs by Bank Negara Malaysia which came into effect on July 1, 2017, premium pricing is now determined by individual insurers and takaful operators, according to Allianz General Insurance Company (Malaysia) Bhd Chief Sales Officer Horst Habbig.

While premiums charged on products will vary from one insurance company to another based on their business risk models and strategies, Habbig observes that the pricing of fire tariff imposed by banks on their clients “has remained the same as it was 30 years ago”.

“In Malaysia, people forget what home insurance is all about. For 30 years we had the fire tariff where the prices were the same for all. There was no need to compare and the decision was to buy or not to buy insurance. But now, it makes sense to compare as there are many choices in the market so homeowners should really start looking at their home insurance needs,” he adds.

Many homeowners are unaware that they are actually able to obtain as much as 30% premium discount (after weighing the underlying risks) should they purchase their fire policies directly from insurers.

“Banks are likely to encounter complications in their operational processes or even endure income reduction should they slash the existing premium rate,” he tells FocusM. “In fact, a local bank imposes a RM250 fee on its home loan borrowers should they opt to shop for their own fire insurance policy.”

Another pertinent issue which homeowners tend to overlook is to equate their mortgage reducing term assurance (MRTA) policy as the ultimate source of protection for their homes.

For example, when a homeowner takes an 80% loan for a property priced at RM1mil, the bank will insure the RM800,000 being the money he/she has borrowed from the bank.

“Realistically, the sum insured should centre on the reconstruction of the property in the event of a disaster (man-made or natural) instead of the sum valuation of the loan,” Habbig points out. “At the end of the day, homeowners tend to either pay too much or too little for coverage.”

As such, homeowners must always take it upon themselves to find out the options available and the best long-term protection for their homes.

Elaborating further, Habbig also reveals the low awareness level among high-rise property owners who don’t realise that they are “double paying” for fire insurance – one to their loan financiers and the other to the joint management body (JMB).

The Strata Titles & Strata Management Act 2013 stipulates that the management corporation is responsible to insure all high-rise units under a master insurance policy, thus making it mandatory for owners to pay their share of the fire insurance to their JMB.

But as a precautionary measure, banks are also insuring properties financed by them and bill their borrowers accordingly.

“In respect of strata properties, owners should have a copy of the master insurance and forward it to their financier,” advocates Habbig. “Any additional coverage for the property will be double insurance and really does not serve any purpose.”

On what would be his advice to discerning homeowners, Habbig opines that their best option is to spend some time and effort to research the desirable coverage, identify the insurer and ask their bank to provide something similar or purchase the policy direct from the company’s agents or representatives.

“This is really the wisest thing to do given agents nowadays are reachable 24×7 to render advice related to claim matters,” he suggests. “Moreover, agents are deemed more proactive in giving advice as they are more savvy with regards to insurance products.”

The first priority of banks is, of course, to safeguard or recover the value of the loans they have given out as opposed to looking after the private interest of the homeowners.

“As such, at times we note that banks do not remind their borrowers to continue renewing their home-related insurance policy (that is fire insurance) after the expiry of their loan tenure,” says Habbig.