Last Updated on by Tree of Wealth
Becoming a homeowner is a significant life achievement. In Singapore, if you’re purchasing a Housing and Development Board (HDB) property and planning to use your Central Provident Fund (CPF) savings for monthly loan repayments, the CPF Home Protection Scheme (HPS) becomes a mandatory purchase.
HPS is a mortgage-reducing term insurance that primarily safeguards you and your family from losing your HDB flat in unfortunate circumstances such as death, Terminal Illness (TI), or total permanent disability (TPD). In such events, the sum assured by HPS goes towards settling any remaining housing loan, providing your family with financial security and the comfort of knowing they won’t have to bear the loan repayments or risk losing their home.
Key Features of HPS
- Reducing Sum Assured: As the homeowner continues to pay off the loan, the sum assured decreases yearly. However, the premium stays constant throughout the policy term.
- Payments: The premium is designed to be affordable, and it is deducted annually from your CPF Ordinary Account (CPF-OA) savings. The premium payment term is only 90% of the HPS coverage period.
- Policy Term: HPS offers coverage until the homeowner turns 65 or until the housing loan is fully settled, whichever comes first.
- HPS ‘Premium Rate’: The mortgage-reducing sum assured is based on an HDB Loan at a 2.6% rate.
- HPS Exemption: There’s an option to opt out of HPS if you have existing life or term insurance that covers the housing loan amount.
Are there more favorable alternatives to HPS for my mortgage loan coverage?
If you own a private property, HPS won’t be suitable for you as it doesn’t cover private housing, even if you’re using CPF for home installments. You’ll need to procure private life insurance to act as mortgage insurance.
For HDB owners, procuring personal life insurance to cover their mortgage could be a more flexible option, as it allows adjustments in the sum assured, policy term, and includes the option to add critical illness coverage. Moreover, you can also use this life insurance for future home purchases. In contrast, HPS coverage ceases if you sell your flat or fully pay off your HDB loan.
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Potential Alternatives to HPS for Mortgage Loan Coverage
Term Insurance
Term insurance policies like Singlife Elite Term or Etiqa Essential Term Life Cover are often preferred for mortgage loan coverage. They provide a fixed sum assured, an option to include early critical illness coverage, and can be more affordable compared to MRTA.
Mortgage Reducing Term Assurance (MRTA)
MRTA coverage is similar to HPS, in that the sum assured decreases over the term, and the premium term is 90% of the policy term. MRTA also provides interest rate options ranging from 1-5%, ensuring comprehensive mortgage loan coverage.
You May Be Interested:
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Comparing Coverage: Level Term Insurance vs. Mortgage Reducing Term Assurance
(Considering a 3% Interest Rate)
|
Policy Illustration For Level Term Insurance |
|||
|
End of Policy Year / Age |
Total Premiums Paid To-date (S$) | DEATH BENEFIT |
SURRENDER VALUE |
|
Guaranteed (S$) |
Guaranteed (S$) |
||
|
1/ 37 |
361 | 500,000 | 0 |
|
2/ 38 |
722 | 500,000 |
0 |
| 3/ 39 |
1,083 |
500,000 |
0 |
|
4/ 40 |
1,444 | 500,000 |
0 |
| 5/ 41 | 1,805 | 500,000 |
0 |
|
6/ 42 |
2,166 | 500,000 |
0 |
| 7/ 43 | 2,527 | 500,000 |
0 |
|
8/ 44 |
2,888 | 500,000 | 0 |
|
9/ 45 |
3,249 | 500,000 |
0 |
| 10/ 46 | 3,610 |
500,000 |
0 |
| 15/ 51 | 5,415 | 500,000 |
0 |
|
20/ 56 |
7,220 | 500,000 | 0 |
| 25/ 61 | 9,025 | 500,000 |
0 |
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| Policy Illustration for Mortgage Reducing Term Insurance | ||
|
End of Policy Year / Age |
Total Premiums Paid To-date ($) | Guaranteed Death Benefits ($) |
|
1/ 37 |
505 | 487,513 |
|
2/ 38 |
1,010 | 473,494 |
|
3/ 39 |
1,515 |
459,048 |
| 4/ 40 | 2,020 |
444,164 |
| 5/ 41 | 2,525 |
428,826 |
|
6/ 42 |
3,030 | 413,022 |
| 7/ 43 | 3,535 |
396,737 |
|
8/ 44 |
4,040 |
379,957 |
| 9/ 45 | 4,545 |
362,667 |
|
10/ 46 |
5,050 | 344,851 |
|
15/ 51 |
7,575 | 247,303 |
| 20/ 56 | 10,100 |
133,991 |
| 25/ 61 | 11,615 |
2,365 |
*The premium is based on a Male, Non-smoker profile, but quotations can vary between insurers and insured profiles.
When considering Level Term Insurance, the sum assured stays constant over the policy term. On the other hand, with MRTA, the sum assured progressively diminishes each year, while the premium remains the same over the policy duration.
The decision between Level Term Insurance and Mortgage Reducing Term Assurance depends on your personal circumstances and needs. Both options have unique features that cater to different home protection requirements. A well-informed decision can provide you with peace of mind and secure the future of your loved ones. Speak with one of our seasoned financial advisors today to gain insights tailored to your financial needs and map out a customized financial plan. Make the best choice for your family’s future and contact us now.
