if let say the house is worth 600k and my loan is 400k, the bank will usually buy for you Fire Insurance to cover only 400k. Should I top up the coverage to 600k?
How does Fire Insurance works anyway? Is it they pay base on current value or the exact amount that you bought?

Thanks

Lol.... normally it is the opposite. Bank will insure the correct value (cost of rebuilding normally 70% to 80% of developer's price) & will not change the sum insured for the duration of the loan (they get 7 to 10% income fr the insurance) It will be the owner who wants to reduce the sum insured, don't want to cover/take out perils (flood, landslip ect) in most scenerio (want to save on insurance)

If you feel that the sum insured is not enuf to cover the cost of rebuilding then you can request the bank to insure a high amt since you are paying the premium and they earn the commission. Mind you that you pay land premium + profit to the developer + building cost hence most of the time it is grossly overinsured. Talk to a contractor and he will tell you to rebuild a 2 storey house probably cost RM150k to RM250k depending on finishing but you probably paid RM300k to RM450k for the house. Developer will say "u r buying a lifestyle"

In a event of a claims (based on the insured peril) the ins. co. will rebuild or reinstate the building to its original condition (w/o renovation unless specifically insured with separate sum insured) If it cost more to reinstate (total loss) ins. co. will pay the bank, bank deduct the o/s loan amt and remit any remainder to the owner.

Actually the insurance is owned by the bank until loan is settled (since the house is oso owned by the bank)