When people read through the cost breakdown of a KPR (Kredit Pemilikan Rumah, an Indonesian bank mortgage), they often find two lines nobody explains: a life insurance premium and a fire insurance premium. Banks almost always require both, and they often get paid without anyone reading the policy.
Yet these two policies can decide a lot when something goes wrong. One deals with the family’s debt if the borrower dies. The other deals with the house if it burns.
This guide is for mortgage borrowers and their families, so you know what you’re paying for, what’s protected, and what to do if you need to make a claim.
Why the bank requires two policies
While the KPR runs, your house secures the loan through Hak Tanggungan, the registered mortgage lien. The bank wants two things to stay safe: your ability to repay, and the value of the collateral.
Life insurance protects the first. If the borrower dies, the insurer pays off the remaining debt instead of leaving it with the family. Fire insurance protects the second. If the building is damaged by a covered risk, there is money to repair it.
On both policies, the bank is usually named as the party that receives claim payments first, up to the remaining debt.
How premiums are paid differs between banks. Some collect them in one payment at signing for all or part of the loan term, others bill them periodically. Premiums are among the upfront costs people forget, as covered in hidden costs people forget when buying a house.
Ask too whether you can choose your own insurer. Some banks only accept their partner companies.
Life insurance: paying off the debt if the borrower dies
KPR life insurance covers the borrower named on the policy. If that person dies during the loan term, the insurer pays the remaining debt to the bank under the policy terms. The sum insured usually follows the outstanding principal, so it shrinks as the loan is paid down.
For the family, this means the house doesn’t have to be sold just to clear the debt. Once the claim is paid, the heirs can ask for the certificate and have the lien removed.
A few points people often misunderstand:
- Job loss is usually not covered. KPR life insurance generally doesn’t pay instalments if you are laid off or fall ill, unless the policy includes a specific extension.
- Arrears may not be covered. Instalments missed before the borrower died, plus penalties, may still be owed. Ask for the details.
- Health declarations must be honest. Policies have exclusions, and an existing illness that wasn’t disclosed at application can be grounds to reject a claim.
Fire insurance: protecting the building
KPR fire insurance covers the house itself, not the land, and usually not the contents. Furniture, electronics and valuables need separate cover if you want them protected.
A standard fire policy generally covers fire and a few related risks, such as lightning and explosion. The full list of covered and excluded risks is in the policy, so ask for a copy.
For timber houses and homes in dense neighbourhoods, this cover matters even more. Fire spreads easily from house to house, including in riverside settlements where homes stand close together.
Watch the sum insured as well. If you renovate heavily or extend the house, ask whether the figure in the policy needs updating. Keep photos of the house and receipts for major work, since both help when a loss is assessed.
Flood cover as an extension
Floods are generally not part of a standard fire policy. Flood cover usually has to be added as an extension, for an extra premium.
In South Kalimantan this deserves serious thought. The January 2021 floods hit much of the province, with Hulu Sungai Tengah among the worst affected. Many areas around Banjarmasin are also low-lying and tidal.
Ask the bank or the insurer:
- Whether your policy already includes flood cover, or whether it needs adding.
- How the policy defines a flood, including whether water from tides and rain counts.
- What the deductible is (risiko sendiri), meaning the part of each loss you still bear.
Insurance doesn’t replace prevention. A raised floor and good drainage are still far more useful, as covered in building flood resistant homes in wetland areas.
How the family makes a claim
If the borrower dies, the family usually needs to:
- Tell the bank as soon as possible. Policies usually set a deadline for reporting, so don’t wait.
- Gather documents, such as the death certificate or a statement of death, a letter from the doctor or hospital, ID for the borrower and the heirs, and the credit agreement. The bank will give you the full list.
- Ask about instalments while the claim is processed. Check whether payments should continue for now so the loan isn’t recorded as overdue.
- Ask for the payoff letter and the certificate once the claim is paid, then clear the lien at the land office through roya.
For a fire or flood, report to the bank and the insurer as soon as you can. Photograph all the damage before cleaning up, as far as it’s safe, and keep any official report you’re given.
Joint-income loans and sharia mortgages
If the KPR was taken on a husband’s and wife’s combined income, ask who is insured. Some banks only insure the main borrower. If the spouse who isn’t on the policy dies, the debt keeps running while part of the income that paid it is gone.
A sharia KPR uses sharia insurance (asuransi syariah). The terms differ a little: the premium is called a contribution (kontribusi), and the money is managed as a tabarru’ fund in which participants cover each other. For the borrower, the job is the same: it pays off the financing if the participant dies and protects the building.
When the loan is paid off, moved or transferred
KPR insurance follows the loan. When the loan ends or changes, the cover changes with it.
- Paid off early. Cover usually ends with the loan. If the premium was paid up front for the whole tenor, ask whether any of it is refunded.
- Moved to another bank. The new bank generally asks for new policies, because the old ones are tied to the loan at the old bank. Include these new premiums when you work out the cost of switching.
- Transferred to a buyer through an official takeover. The new borrower needs cover in their own name. Ask the bank how the policies are arranged.
Once the KPR is paid off, the bank’s policy no longer protects your house. For a timber house or one in a flood-prone area, consider home insurance in your own name.
Keep the policy and ask these questions
Many families don’t know where the policy is when they need it. Ask for a copy of the policy or insurance certificate at signing, keep it with your KPR documents, and tell your family where it is.
Before signing, ask the bank:
- Who is insured, and for how long.
- Which risks the fire policy covers, and whether flood is included.
- How the premium is paid, and whether part of it is refunded if you pay the loan off early.
- How and where your family reports a claim.
If the instalments ever get heavy because your income drops, these two policies usually won’t help. The bank has other options, covered in when mortgage payments get hard.
Questions about a house you’re considering? The Vorneo team is on WhatsApp.
