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How does Contents Insurance work?

Contents insurance provides coverage against any loss or damage of all movable things in your home. In other words, items which are not part of the building structure.

This type of insurance covers the cost of replacing or repairing your personal possessions. This includes household contents like furniture, curtains, stereo, television, laptops, electrical appliances, jewellery, sports equipment, clothes, and shoes.

Contents insurance can be bought as an individual policy or in combination with building insurance.

All insurance providers offer different content covers. However, most will cover you against fire, flood, storm, earthquake and theft under this policy. Some content insurance policies also protect your valuables against damage or loss in your absence even when you are in abroad.

Now the question arises: How does it work?

The majority of the insurance providers work on two grounds. If you ask for a content insurance claim against your policy, your home insurer will settle it either on an ‘indemnity’ basis or ‘new-for-old’ basis. Both of them have an immense effect on the premium of your contents policy.

Option 1: Indemnity

Indemnity is a policy cover that considers depreciation for the wear and tear on the items that you are making a claim for. This might reduce the payout you will get. You will receive only the current value of your possessions. Although the premiums for this cover are lower, you would only receive a portion of the actual cost of replacing the items as a claim.

For example, your sofa gets damaged due to water breakdown. You then claim the damages against your sofa under this policy. Even if it costs S$450 to replace your sofa, it is possible that after factoring in its age, you may receive only S$200.

Option 2: New-for-old

The other one is new-for-old, where you will receive the costs of replacing the items. As per this policy, the home insurance company will pay you for a new product of similar value. This is in case your insured product gets stolen or damaged. You will receive the replacement value of a brand-new item by the insurer.

Many companies provide new-for-old cover on almost all the household items except those that depreciate quickly. This exception might include clothes and linen which are less durable. They will replace your items based on their current replacement value, without applying a depreciation value to them.

Due to the higher payout, new-for-old policies tend to have higher premiums as compared to indemnity policies. A replacement value policy provides coverage for only the value of your possessions. The value of most of these items depreciates every year. That is why it is essential to review your policy regularly and ensure your insurance is up-to-date.

Get the maximum benefits from your contents coverage policies. You can do this by keeping your insurance provider up-to-date with your current situation.

Does this include new items in my home?

Let’s say you have added some items that are worth more than the mentioned item limit of your policy. You should let your insurer know about the latest additions and make him update the policy, of course with an extra premium.

Likewise, if you have made a series of valuable purchases, you need to inform the insurer to increase the sum insured. If you have recently replaced a lot of the furniture of your home, you will need to increase the total sum insured to keep the furniture protected under the coverage.

Ideally, you should have enough protection so that you can replace everything you own in case of any misfortune.

*The advice offered in this column is intended for informational purposes only. It is not intended to replace or substitute for any professional, financial, legal, or other professional advice.

If you have specific concerns or a situation in which you require professional help, you should consult with an appropriately trained and qualified adviser.

Joshua Foo

Financial Services Consultant

Joshua Foo joined Pana Harrison in 2019 after taking a break from the Life Insurance industry for 18 years. He joined the Insurance industry back in 1991 and decided that his passion still lies with helping individuals in their Financial Planning needs.

A dedicated individual who is sincere in listening to his clients and provides quality advise and solutions to cater to each needs.