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PROPERTY: Is mortgage insurance necessary?

By Stella Thng

For most Singaporeans, your home will likely be your single most precious asset. And if you’ve taken a loan from the HDB or a bank (or if you're about to, read this first), you’ll also be a slave to your mortgage for many more years to come. Unfortunately, while many Singaporeans have a keen interest in the property market, we’re not nearly as savvy about the financial matters.

We know that it’s compulsory to purchase fire insurance for our home, regardless of whether it’s an HDB flat, condominium or landed property. This can be as cheap as under $2 a year (typically, fire insurance for HDB flats are for a five-year period). Fire insurance, however, only covers structural damage to your home’s interior, not its content. Is that enough? What about mortgage insurance? And how is that different from home insurance? We answer your frequently asked questions.

WHY DO I NEED MORTGAGE INSURANCE?
Anna Chen, an insurance specialist with Providend, an independent financial advisory company, explains: “A housing mortgage is probably your biggest liability. Many of us would like the loan to be paid up should we die prematurely, so that our family can stay in the same house and maintain their current lifestyle without worrying about loan repayment. Mortgage insurance takes care of that. Moreover, mortgage life insurance is much cheaper than other life insurance.”

MY FIANCE AND I PLAN TO USE OUR CPF SAVINGS TO FINANCE OUR HDB FLAT. WE WERE TOLD WE NEED TO BUY INSURANCE UNDER THE HOME PROTECTION SCHEME. WHAT’S THAT?
According to HDB, if you use your CPF savings to pay your monthly instalments, you will need to be insured under the Home Protection Scheme (HPS), a form of mortgage reducing scheme for public housing. This means that if the insured member becomes permanently incapacitated or dies prematurely before age 65, the CPF Board will pay the outstanding housing loan based on the amount he or she is insured. How much you pay depends on factors such as your loan amount, age, gender and preferred percentage of coverage.

Some couples choose to be insured for 50 per cent each of the loan amount. If one is struck by a terminal illness and unable to work, the payout will cover his or her share of the loan. Others opt for 100 per cent. Cai Meiying, 55, considers herself fortunate that she did not stint on the HPS insurance eight years ago, when she and her late husband bought their four-room flat in Choa Chu Kang. He later lost his sight due to diabetes and kidney failure, and was unable to continue his job as a driver. “Fortunately, we’d paid more for 100 per cent coverage, so the rest of our mortgage – about $180,000 – was paid off by the CPF.

Otherwise, we’d have had difficulty juggling that with his medical bills.” To calculate your HPS premium, check out the e-service at CPF’s website. In the event that you sell off your HDB flat, note that the coverage also terminates. Your new fl at will require a brand new HPS policy. Even if the loan amount for your new flat is similar to that of your old place, your premium will be at a higher price due to your age and current health conditions.

MY WIFE AND I INTEND TO FINANCE OUR HDB FLAT WITH CASH. DO WE NEED HPS INSURANCE?
The HPS is not compulsory if you pay off your loan monthly in cash. However, you can still opt to be covered under it.

DO EXECUTIVE CONDOMINUMS AND HUDC FLATS REQUIRE HPS INSURANCE?
Executive condominiums cannot be insured under the HPS, as they are not considered public housing. HUDC flats, however, are eligible. Even if it later becomes privatised, it can continue to be covered under the HPS as long as the owners remain the same, they don’t switch financial institutions to finance the loan, and they pay their premiums on time.

CAN I GET MY INSURANCE FROM PRIVATE INSURANCE PROVIDERS INSTEAD?
Yes. In fact, Junn Liang and his wife, Dorcas, chose to do so when they bought their first HDB flat in their early 20s. “We knew we’d want to upgrade to a condominium in the future, so we opted for a mortgage-reducing loan with a local insurance provider instead, as it will ‘follow us’ to our next home. At our young age, the premium is very reasonable and we like the fact that it won’t increase when we get older.” Of course, should their next house be more expensive, they would have to increase their coverage accordingly.

However, their original policy can continue running no matter how often they move. For Janice Sim, 36, she had no choice but to opt for a private insurer, as HDB rejected her application on account of her existing health conditions, which she declined to reveal. “I managed to get coverage with a private insurer, though I had to pay more due to my current health situation.”

IS MORTGAGE INSURANCE COMPULSORY FOR PRIVATE PROPERTIES TOO?
No. This is regardless of whether you use your CPF or cash to finance your home. In fact, according to a survey conducted with 300 private property owners by OCBC Bank in 2011, 59 per cent of them do not have protection plans. “Many felt that the premiums paid for such plans are, in most circumstances, ‘wasted’,” noted Lim Wyson, head of Global Wealth Management.

However, since most private properties cost more than HDB flats, your dependants will have to shell out a lot more to pay off your housing loan in the event of your death, disability or terminal illness. Thus, though it is not legally required, private property owners should also consider buying mortgage insurance.

WHAT ABOUT HOME INSURANCE?
Home insurance ensures a roof over your head should an unexpected event such as a fire wipe out everything, says Ho Lee Yen, chief marketing officer with AIA Singapore. Plans such as AIA’s Elite Home Care generally provides coverage against loss or damage to buildings caused by principal perils such as fire, explosion, bursting/overflowing of water tanks and certain natural disasters, among others.

Though this is not required, Anna advises homeowners to insure their home’s contents as well. “It provides coverage against certain risks such as fire, and helps to pay for restoring your home to its original condition and replacing your personal possessions. It is especially important when you have precious assets such as paintings, antiques and jewellery at home.” In fact, you may even require special home content insurance to cover these items fully.

Some home insurance products even include benefits such as full theft coverage, worldwide accidental death, personal liability, accidental and medical reimbursement, as well as a five-year- premium waiver, which ensures that the insured and family will continue to be covered in the event of the policyholder’s demise or total permanent disability. Premiums differ depend on how much and the type of coverage you require.

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