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What is Mortgage Insurance & Why Is It Important?

What is Mortgage Insurance & Why Is It Important?

Mortgage insurance in Singapore is an important financial product that homeowners should really consider. This type of insurance is designed to help ensure that your family won’t lose the home if you unexpectedly pass away or become critically ill during the tenure of the mortgage loan.

Mortgage insurance, such as the (most common) mortgage reducing term assurance (MRTA), is a type of term insurance designed to cover your outstanding home loan amount if something were to happen to you during the loan tenure. This type of insurance sees its coverage amount decreasing over time, following the reduction of your outstanding home loan.

In other words, it ensures that should you, unfortunately, pass away, suffer from total permanent disability, or a terminal illness, your outstanding mortgage will not become a burden to your family. Your loved ones will not need to worry about losing the house, as the insurer will pay off the outstanding mortgage, subject to the policy terms and conditions.

Not only does it cover the insured for death and total permanent disability, but some mortgage insurance policies also offer additional benefits such as critical illness coverage. This means that if the policyholder is diagnosed with a severe illness, the policy may provide a payout that helps cover the mortgage.

Mortgage insurance is important as it provides financial protection and peace of mind for the borrower and their family, ensuring that their home will remain theirs, even if unforeseen circumstances occur.

It’s also worth noting that mortgage insurance is not mandatory for private properties (HDBs are compulsory for at least a HPS). However, considering the high cost of properties and the potential financial burden a mortgage can place on a family, having a mortgage insurance policy can be a prudent decision.

When purchasing mortgage insurance, it’s crucial to fully understand the terms and conditions of your policy, as well as the exact coverage it provides. Different policies will offer different terms, so it’s recommended to seek advice from a trusted financial advisor to choose the most suitable mortgage insurance policy for your needs.

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Navigating Mortgage Insurance in Singapore – Understanding HPS, Term Insurance, and MRTA

There are two primary types of mortgage insurance available in Singapore:

Mortgage Reducing Term Assurance (MRTA)

Also known as Decreasing Term Assurance, this is the most common type of mortgage insurance in Singapore. Under this policy, the sum assured decreases over time, typically in line with your remaining home loan balance. Should anything happen to the policyholder, the insurer will pay out an amount equivalent to the outstanding home loan. Therefore, your family would not have to shoulder the burden of the home loan repayment.

Level Term Insurance

Unlike MRTA, Level Term Insurance provides a fixed coverage amount throughout the policy term. This means that if the policyholder passes away, the sum assured would be paid out, regardless of the remaining loan amount. This could result in extra funds for the family, which can be used to cover other expenses.

Singapore’s regulatory environment ensures a high degree of transparency and accountability, which is beneficial to policyholders. Insurance companies in Singapore are overseen by the Monetary Authority of Singapore (MAS), which provides guidelines and regulations to protect policyholders’ interests.

Here are few more insights about mortgage insurance in Singapore

  • It’s Cost-Effective: Given its decreasing nature, MRTA premiums are generally lower compared to other life insurance products. This makes it an affordable way to safeguard your family’s financial security.
  • It’s Flexible: You have the flexibility to decide the policy term based on the loan tenure, and you can choose a single or joint-life policy depending on whether the property is co-owned.
  • It May Come with Additional Riders: Some insurance companies offer additional riders that you can attach to your base policy for more comprehensive coverage. This could include critical illness rider, waiver of premium rider, etc.
  • It’s Not Mandatory but Highly Recommended: While mortgage insurance is not a legal requirement in Singapore, it’s highly recommended for homeowners with outstanding home loans. It’s especially crucial for those whose families depend on them financially.

Remember, when deciding on mortgage insurance, consider factors such as the affordability of premiums, your health status, financial obligations, and dependents. Always consult with a financial advisor or insurance professional to ensure that you are making the best choice for your circumstances.

Mortgage insurance in Singapore is an essential part of comprehensive financial planning, particularly for homeowners. It acts as a safety net, ensuring that your family can maintain their home and lifestyle in the unfortunate event of your untimely passing or critical illness. Every homeowner’s situation is unique, and a professional financial advisor can provide guidance tailored to your needs.

So, why wait? Reach out to our experienced financial advisors today and let’s start the journey towards a financially secure future for you and your family.

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