Many people spend twenty or thirty years paying off a home — the largest asset of their lives — and then hesitate over a fire insurance premium of a few thousand baht a year that protects it. This article covers residential fire insurance in full: what it covers, how to choose the sum insured, and the points people commonly misunderstand.
What residential fire insurance covers
The name says "fire," but the basic cover of a standard residential policy is broader than that. It generally includes fire, lightning, explosion, damage from a vehicle striking the house, aircraft falling, and water escaping from the building's internal pipework (not flooding). Standard policies also extend to a basic group of natural perils — storm, flood, earthquake and hail — under a limited annual sum. Anyone living in a genuinely flood-prone area should buy separate additional flood cover [check the conditions in the policy].
It covers both the building and what's inside
The sum insured divides into two parts: the structure (the house itself, excluding the value of the land) and the contents, such as furniture and appliances. You can insure the building alone or include the contents as well. What many people miss is that the contents accumulate more value than expected. Walk through the house and estimate roughly — the TV, the fridge, every air conditioner, the kitchen equipment — and it usually comes to a few hundred thousand baht.
The premium is far lower than people assume
Measured against the value of what it protects, residential fire insurance is among the lowest-premium products there is. For a house worth several million baht, the premium is usually in the low thousands per year, depending on the sum insured and cover chosen. The reason is that the probability of fire in any one house is low, while the damage when it does happen can be total. This is the classic case of a risk that financial planning says should be transferred to an insurer.
A mortgaged house vs a debt-free one
A house financed by a bank is usually required to carry fire insurance under the loan conditions, generally covering the outstanding debt or the value of the structure. What to check is whether that sum includes the contents — most do not, so you can buy that part yourself. And for a house that is fully paid off, don't let the insurance lapse along with the loan, because at that moment the house is entirely your asset and the whole risk rests with you alone.
How to set the sum insured correctly
The principle is to set it close to the rebuild cost of the house, not the purchase price including land. Set it too low and the average clause reduces the settlement proportionally, so you don't receive the full loss. Set it above the real value and you still don't receive more than the loss — you simply waste premium. The approach is to estimate usable floor area multiplied by the current construction cost per square metre, or ask the insurer to help assess it, and review the sum whenever you extend the house.
In short
Fire insurance is paying thousands to protect millions. Check today whether your home has cover, whether the sum matches its real value, and whether the contents are counted in. If you are not sure how far the policy the bank arranged goes, message us on LINE and we will read it with you.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.