When you take out a mortgage in Hong Kong, your bank will almost certainly require you to carry fire insurance on the property. Most people sign the form, pay the premium, and never think about it again.

We were arranging mortgage insurance documents for one of our client to a bank, and they refused to recognise the insurer, sighting that this particular insurer is not in their approved list, and suggesting to insure with the bank for only fire insurance, while our client has all risk covered. While it all sounds very convenient, that’s the mistake.

The Assumption Everyone Makes

Here’s what most homeowners believe: “My bank arranged fire insurance for my mortgage, so my property is fully protected if something happens.”

Here’s what’s actually true in many cases: your bank only needs enough insurance to protect its own financial interest, the outstanding loan balance. Not the full value of your home.

Why This Matters More Than You’d Think

Consider a typical scenario:

• Property’s full rebuild cost: HKD 20,000,000
• Outstanding mortgage balance: HKD 5,000,000 (roughly 25% of the property’s value)

If your fire insurance is tied to the loan amount rather than the true reinstatement cost, here’s what happens if the worst occurs, a fire destroys the property completely:

1. The insurer pays out HKD 5,000,000
2. Your bank is repaid in full, and the loan is closed
3. You are left with a destroyed property and a HKD 15,000,000 gap and with no money to actually rebuild

The bank’s interest is protected. Yours isn’t.

The Bank Isn’t Being Deceptive, It’s Just Not Their Job

This isn’t a scandal or a hidden trick. Banks aren’t obligated to protect your equity, only their collateral. Fire insurance requirements exist to satisfy the bank’s risk, not to guarantee you can rebuild your life if disaster strikes.

The responsibility for adequate coverage sits with you, the homeowner and it’s an easy thing to overlook when the insurance was “already arranged” as part of the mortgage paperwork.

The Second Gap Nobody Mentions: What’s Actually Covered

The sum insured problem is only half the story. There’s a second gap that catches even more people off guard and it’s about what the policy actually covers, not just how much.

Bank-arranged mortgage fire insurance is typically a named perils policy. As the name suggests, it only pays out for a specific, listed set of events – fire, typhoon, explosion, and a handful of other named perils. If the cause of your loss isn’t on that list, you’re not covered, no matter how much your sum insured is.

What it generally does not cover:

• Accidental damage (a pipe bursts and floods your home, a mishap during renovation)
• Water damage from sources outside the “named” list
• Impact damage, theft-related damage to the structure, and various other everyday risks

What most homeowners actually need and usually assume they already have is a property all-risk policy. Unlike named perils cover, all-risk insurance covers any cause of loss unless it’s specifically excluded, rather than only paying out for a short list of specifically included events. That’s a fundamentally broader, more practical form of protection for how damage actually happens in the real world.

What to Actually Check

Before you assume you’re covered, ask:

1. What is my sum insured actually based on? Is it my outstanding loan balance, or the true cost to rebuild my property from scratch at today’s construction prices?
2. Has my sum insured kept pace with rising construction costs? Rebuild costs increase over time, a policy that was adequate five years ago may be significantly under-insured today.
3. Is my policy named perils or all-risk? If it’s named perils, find out exactly what’s on (and off) that list and you may be far less covered than you think for everyday accidents.
4. Am I using the bank’s default insurer, or have I compared options? Bank-arranged policies (often through a single default provider) aren’t always the most competitive or the most accurately calculated for your specific property, and may not offer all-risk cover at all.

The Fix Is Simple

Get an independent assessment or talk to us for your property’s actual reinstatement cost – not its market value (which includes land value that doesn’t need rebuilding), but the pure construction cost to rebuild the structure. Compare that figure to your current sum insured. Then check whether your policy is named perils or all-risk, and whether that matches what you’d actually want covered. If there’s a gap on either front, top up or upgrade your coverage, either through your existing insurer or an independent broker who can review the numbers and the wording properly.

It’s a five-minute conversation that could save you from an enormous, entirely avoidable loss.