What is Mortgage Insurance?
It is an insurance plan the homeowner buys when they buy a home with a loan.
In the event that the owner passes away, or suffers from a terminal illness or permanent disability, resulting in his/her inability to pay the mortgage, the insurance will pay the remaining balance of the mortgage.
What is the CPF Equivalent?
It is called the CPF Home Protection Scheme.
You must buy this insurance if you are using your CPF to pay for your HDB mortgage.
It is automatically deducted from your CPF OA every year when it is up for renewal.
For more information about this scheme, click HERE.
Why does it Suck?
The premium you pay is fixed for the whole period, eg if the premium $300 per year when your outstanding mortgage is $400,000; the premium will still be $300 after 20 years even though the outstanding mortgage balance would have dropped to $50,000.
If the owner passes away during the first year of the insurance, the insurance company will cover the full $400,000 of the mortgage.
However, if the owner passes away 20 years after buying the HDB, the insurance will only pay the $50,000 outstanding to cover the mortgage, even though the owner has paid $6,000 ($300 x 20 years) worth of premiums.
Source: CPF
But, if instead of buying an HPS, you instead bought a life insurance policy.
The cheapest 30-year term-life insurance plan we found on CLEARLYSURELY cost $368 per year - a little more expensive than the HPS.
But, the thing here is, if the homeowner has a life insurance instead of a mortgage insurance, whether the homeowner passes away on the first year or the last year while the mortgage is still outstanding, the dependents would get the full $400,000 instead of just an amount that is sufficient to cover the mortgage.
So the dependents can use the $400,000 to pay off the outstanding mortgage, and any amount of leftover can be used for funeral cost, living expenses, etc.
Source: CLEARLYSURELY
Recommended Read: Should I Have A CPF Term-Life Insurance?
What's the Good News then?
You can apply to be exempted from the CPF HPS.
If you have one or more of the following policies:
- Whole life
- Term life
- Endowments
- Life Riders (must be attached to a basic policy)
- Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider
In addition, these policies must cover the outstanding housing loan up to the full term of the loan or 65 years old, whichever is earlier.
The exemption can also be revoked if any of the insurance policies used for the exemption is discontinued or altered.
So, if you are considering buying an HDB and paying for it with your CPF, you might want to consider replacing the CPF HPS policy with a term life insurance policy.
Recommended Read: How I Saved $1000 of my $2500 Salary
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Ehhh .... 3 things:
ReplyDelete1) The $368 Tokio Marine term does not include TPD --- need to pay extra for rider.
2) Last 3 years of HPS is "free". Hahaha. Actually other mortgage reducing insurance from the various insurers all similar pricing lah ... in fact usually more expensive becoz no economy of scale.
3) HPS can use cpf to pay :)
I know, I know ... financially prudent ones will rather use cash to pay instead of higher interest cpf. But I think most sinkies rather utilise the "can see cannot touch" cpf as much as possible. Hahaha!
Oh I forgot to mention ... HPS occasionally rebate some money back to your cpf ... When the premiums collected exceed payouts by certain amount (internal contract between CPF & the insurer). So far I got 2 rebates in last 10 years.
ReplyDeleteHave someone read the hps general information guide behind your HPS certificate issued to u. Look at claim even u claim your payment is not fully cover.1. If you have arrears owing this is not cover,so you have to pay your owing in cash if not your spouse will continue to pay. The loan in installment will continue to service by the insurer for 2 or thereafter years for permanent disability claim and if you return to work within this period you have to refund all that has been paid to you. Lastly, medically there is a need for you to declare your health condition. Remember even cancer cells are living in our body and its only a matter of time when it will trigger and they will give many excuses that you have a pre-existing illness. Even a flu might take away your life if its not treated and died later.There are many virus has no vaccination and if someone died of such illness they will give excuses that you had a pre-existing illness of flu. So I personally think HPS should check the NEHR national electronic health registered before approving HPS and this goes to DPS too for dependant protection scheme. The pre-existing illness is the trick here to reject your claim. So be careful
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