[Must-read for property owners] Fire insurance guide: coverage, sum insured calculation, and common questions about management fees

The fire at Wang Fuk Court in Tai Po at the end of 2025 suddenly brought “fire insurance” (officially known as building structure insurance) into the public spotlight. The incident caused severe loss of life and injuries, and the building structure was seriously damaged, even facing demolition. If a major fire were to break out at home, would owners have sufficient financial protection to cope with the rebuilding crisis?

Many people may ask: what exactly does fire insurance cover? If management fees already include it, do you still need to buy it yourself? How does it differ from home insurance? This article explains, one by one, the scope of fire insurance cover, the need for taking out a policy, and how to calculate the sum insured. 

Fire insurance is the formal name for “building structure insurance”. Although it is called “fire insurance”, its cover is not limited to fire. In general, fire insurance covers damage to the building structure caused by fire, lightning, explosion, subsidence, landslides and other natural disasters or accidents. “Structure” refers to the repair or reconstruction costs of fixed structural elements such as walls, floors, ceilings, doors and windows, and pipes.

It is worth noting that, in principle, fire insurance claims are intended for the repair or reconstruction of the property, rather than being paid directly to the owner as cash for free use. If the property is still subject to a mortgage, the claim payment may first be handled by the bank. The specific arrangement depends on the mortgage terms, and the owner may not be able to decide independently how the claim is used.

Fire insurance and home insurance are two entirely different products and cannot replace one another. To understand the detailed differences between the two and compare major insurers, please refer to: 【Fire Insurance Comparison 2026】How does it differ from home insurance?

For fire insurance, the policyholder is usually the property owner.

For owners who are still repaying their mortgage, the answer is almost always “yes, you must buy it”. When banks approve mortgage loans, they generally make the purchase of fire insurance one of the loan conditions. The reason is simple: if the building structure is damaged and the property value falls significantly, the bank’s collateral will depreciate. As such, the bank will require the owner to take out fire insurance to ensure the property can be restored to its original condition even in the event of an accident.

For owners who have already repaid their mortgage in full, there is no third party forcing them to buy fire insurance, but that does not mean there is no need for it. Imagine a fire destroys the unit’s structure: the repair or rebuilding costs for fixed structures such as walls, floors, ceilings, doors and windows could amount to hundreds of thousands, or even more than a million dollars, all of which would have to be borne personally. Fire insurance is designed to cover the rebuilding costs for such structural damage, so the owner does not have to shoulder the substantial repair expenses alone.

In addition, fire insurance is generally the owner’s responsibility and has no direct relation to tenants. However, tenants may consider purchasing home insurance to protect their belongings inside the flat.  

Further reading: home insurance comparison

This is a common misconception among most property owners. Many owners’ corporations of residential buildings purchase fire insurance for the entire building, with the cost shared through monthly management fees.

Fire insurance purchased by the owners’ corporation usually mainly covers the structure of the building’s “common areas”, such as external walls, corridors, staircases, rooftops and communal pipes. Whether the internal structures of individual units, such as partition walls, floors, and kitchen and bathroom fittings, are covered under the corporation’s policy depends on the policy terms. Even if the corporation’s policy does cover individual units, the sum insured may still be insufficient to cover the actual rebuilding cost of the unit.

Therefore, each property owner may proactively request a copy of the corporation’s fire insurance policy from the management office, and carefully review the scope of cover and the sum insured. For many new developments, fire insurance is already covered by the management fees, so additional purchase may not be necessary when applying for a mortgage. However, some banks will require owners to proactively declare the existing corporation policy to confirm whether the cover meets their requirements. If it is found that the corporation policy does not cover the internal structure of the unit, or that the sum insured is insufficient to cover the actual rebuilding cost of the unit, the owner will then need to purchase additional fire insurance to fill the coverage gap. 

Fire insurance coverage is by no means calculated based on the “market value of the property”. When determining the sum insured, owners may generally choose from the following three methods:

How should owners choose? Owners with a mortgage may use either the “reinstatement cost” or the “original mortgage loan amount” as the basis to ensure compliance with bank requirements; owners whose mortgage has been fully repaid are advised to use the “reinstatement cost” as the basis, as this offers the most reasonable premium and the most accurate protection.

In addition, fire insurance only covers the “original structure” handed over by the developer. Any private renovations added later by the resident, such as wooden flooring or new kitchen cabinets, are not covered. If necessary, home insurance must be purchased separately to address this. If the amount allocated to the unit under a building’s owners’ corporation master policy is lower than the bank’s requirement, the owner will need to purchase additional fire insurance to raise the sum insured to the level required by the bank.

How is reinstatement cost estimated?

For owners without a mortgage, or those who wish to use reinstatement cost as the basis for the sum insured, the following methods may be used for reference:

• Self-estimation: In Hong Kong, the reinstatement cost of a typical residential property is approximately $2,000 to $6,000 per square foot (depending on the building’s age, construction quality and location). Using a 500 sq ft unit as an example, the reinstatement cost would be around $1 million to $3 million. (Figures are for reference only. The actual reinstatement cost depends on the individual property, and it is recommended to appoint a surveyor for an assessment.)
• Appoint a surveyor: The most accurate method, as it provides an official valuation report, though the relevant fees will apply
• Use an insurer’s calculator: Some insurers provide online fire insurance premium calculators for initial reference

Fire insurance premium calculation formula:

Sum insured × premium rate × discount = annual premium

Premium rates on the market range from 0.033% to 0.15%, with differences of several times possible. It is advisable to compare carefully before purchasing.

Example: Suppose an owner purchases a unit with a mortgage of $3 million and a reinstatement value of $1.5 million. The sum insured may be based on either the “original mortgage loan amount” ($3 million) or the “reinstatement value” ($1.5 million). If reinstatement value is used as the basis, the premium is usually cheaper (annual premium of around $525 to $2,250), but it must be sufficient to cover the actual reinstatement cost. Otherwise, underinsurance will occur and any claim settlement will be reduced proportionately.

There are mainly three ways for homeowners to purchase fire insurance. Arranging it through the mortgage bank is the most convenient, as the bank will handle it alongside the mortgage approval process, but the premium may not be the most cost-effective, and the options are limited. Taking out a policy directly with an insurer offers more choices, but comparing the cover and premiums one by one can be quite time-consuming.

You can also compare a range of fire insurance products through 10Life, allowing you to review each plan’s cover, premium rate and excess at a glance, and find the option that best meets your needs.

Further reading: [Fire Insurance Comparison 2026] How is it different from home insurance? Which offers better cover and a lower price?

Q: Is fire insurance the same as home insurance? 

A: No. Fire insurance covers the building structure, while home insurance covers the contents inside the home. The scope of protection is completely different, so do not assume that buying one is enough.

Q: If fire insurance is already included in the management fee, do owners need to buy it separately? 

A: Not necessarily. A owners’ corporation policy usually only covers common areas. The structural cover for individual units may not be included, and the sum insured may not be sufficient. Owners should proactively obtain a copy of the policy from the management office for verification.

Q: Once the mortgage is fully repaid, is fire insurance no longer needed? 

A: It is no longer compulsory, but it is still strongly recommended. Having no mortgage does not mean the risk disappears. If the unit’s structure is damaged, the substantial rebuilding costs will still have to be borne entirely by the owner.

Q: What are the implications of insufficient cover? 

A: If the policy is underinsured, the insurer has the right to reduce the claim proportionately. The owner may only recover part of the repair costs, which may not be enough to cover the actual rebuilding expenses.

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.