This blog post first appeared on Propwise.sg as a guest piece from us.
Propwise.sg is a Singapore property blog dedicated to helping you understand the real estate market and make better buying, selling, renting and investing decisions – minus all the hype and misinformation.
At long last. All the weekend viewings, the endless paper work, the calls, the negotiations, it’s all over. You’ve finally bought your property and have a house to call your home. Which leaves only one thing left to take care of.
Unless you can afford to pay the full value of the house, you will have to take a mortgage loan. Today, we’ll try to shed some light on the insurance that must be bought so that you can protect your estate and honour the loan, no matter what may transpire.
Why should it matter?
After all, the mortgage loan will simply be a net loss to your estate after you have passed on.However, at the relatively low cost of an insurance policy, you can preserve your estate value for your loved ones.
When it comes to protection, you are spoilt for choice when it comes to life insurance policiesthat cover the remaining mortgage loan quantum.It could be term, whole life, endowment or even riders. However, Mortgage Insurance (MI) is often the go-to option due to its relative low cost and its feature of decreasing coverage as time goes by.
2 main choices for a home owner
In the current market, you can either obtain a Home Protection Scheme (HPS) from HDB or purchase MI from any of the insurers. Since 80% of Singapore residents live in HDB, it makes sense for us to start off with the HPS.
Home Protection Scheme
When you are buying public housing and getting a loan from the HDB, it is compulsory for you to purchase HPS. If you intend to pledge a life insurance policy for the loan, you may write to HDB for HPS exemption. HDB may require you to assign the rights of the life insurance to them, if exemption is granted.
The Insured amount and payable premium will vary, according to your remaining loan amount. In addition, you are also only required to cover your portion of the loan if you are sharing the loan burden with anyone else.
Premiums are payable via your CPF OA account. When your OA account is depleted, you can pay via cheque, AXS, internet banking and other variable of cash. Basically, out of your pocket.
You can get an estimate of your premium via CPF’s HPS calculator but I wouldn’t bother, since they have been giving out premium rebates from time to time. Lastly, the payment term is 90% of the insurance term, meaning that you only have to pay for 18 years in a 20 year coverage period.
Mortgage Insurance (MI)
MI is offered by most insurers and banks and is payable by cash. However, there are many variations of MI.
Some are similar to HPS, with a reduced premium payment period. Some offer cash-back benefits when you do not have a claim for certain numbers of years. There are MIs in the market that cater to joint-ownership and others that allow you to add insurance riders to the cover.
Ultimately it is up to you to see which feature you require the most. Otherwise, you may want to choose the cheapest one.
Important points to note
For both HPS and MIs, they are essentially reducing term insurance.Thus, they have some common ground:
– Health declaration is required.
– Suicides are not covered in the first policy year.
– Usually,self-inflicted injuries are not covered in MI but for HPS, they are covered after the first policy year.
HPS allows you to pay via OA account. If you are the type who thinks that CPF is not your money, it may be better to have HPS than MI.
For some insurers, you are able to attach a Waiver of Premium rider to your policy. This is an option that you shouldseriously consider. Upon diagnosis of Critical Illness or Disability, you willnot be required to pay for MI premiums anymore. It is a really good benefit when calamity strikes.
Lastly, HPS ceases when you re-finance your loan or sell your house. You’ll have to get MI or a fresh new HPS.On the other hand, MI stays intact, regardless of loan re-financing or sale of property.
Having insurance coverage is important, whether you are intending the property for investment or residential purposes. Whether you are choosing HPS or MI, the information above should help make your decision a little easier.
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.