As mortgage insurance protects you against exposure to your home loan, it is almost a sin not to get one
Mortgage Insurance Singapore – Singaporeans know a lot about buying properties. But despite all of our knowledge of home buying, we often make this mistake: Not getting mortgage insurance. While most Singaporeans are very familiar with what it means to buy a home in Singapore, not many understand mortgage insurance.
Mortgage insurance, also known as a mortgage term reducing assurance (MRTA). As mortgage insurance protects you, it is almost a sin to buy a home without getting a MRTA as you expose yourself unnecessarily to a home loan.
“What”, “Why” and “How Much” mortgage insurance should you get?
Mortgage Insurance Singapore – What is it?
Mortgage insurance, also known as a mortgage term reducing assurance (MRTA), is a type of insurance that is designed to protect your mortgage loan against the event of a life changing event in your life. In the event of accident or death, a lump sum will be paid out to you or your family if you have bought a MRTA. The lump sum received will be used to pay off your home loan, which eliminates the worry of paying your mortgage.
Mortgage Insurance vs Level Term Insurance
Most people are familiar with life insurance like term insurance and whole life insurance. We are not so used to seeing products like MRTA. But MRTA isn’t something that is unfamiliar to us. MRTA is a special type of term insurance. But unlike term insurance which continues to have a fixed sum assured and premium payable, MRTA doesn’t have a fixed sum assured nor a fixed premium.
For MRTA, the sum assured amount decreases with time. This is because as time goes by, you would be slowly clearing your mortgage. Since MRTA is meant to pay for your mortgage loan in case anything happens to you, the sum assured should decline together with your mortgage amount. This leads to lower premiums payable since the sum assured amount is also decreasing.
However some argue that Level Term Insurance is only slightly more in premium compared to MRTA, hence it may make sense to just buy the Level Term Insurance to act as a form of a “Legacy planning” as it leaves a lump sum payable upon death to your beneficiaries. The only conditions being, most MRTA in Singapore insure you up to 75 years old (although some could be older) and with an average life expectancy of 78-80, this means that your estate will get nothing if you die after the cut off age.
Stay tune for our next article where we will be sharing more on term insurance and some tips on buying term insurance.
Types of Mortgage Insurance in Singapore – Where You Can Buy Them?
There are two types of MRTA that you can buy: Home Protection Scheme (HPS) or private mortgage insurance.
CPF’s Home Protection Scheme (HPS) for HDB flats
HPS is a type of MRTA that was introduced by CPF to protect CPF members and their families against losing their HDB flat in the event of death, terminal illness or total permanent disability. HPS is only applicable for HDB flats. It does not apply to private properties or executive condos (ECs). In addition, if you are paying for your monthly housing loan using CPF, you are mandated to be insured by HPS.
Private Mortgage Insurance in Singapore
You can also get your MRTA through a private insurer. Every Singapore-based private insurer offers MRTA policies that you can buy from. You can either get your MRTA through your personal financial consultant, banks or contact your preferred insurer through their online channel.
HPS vs Private Mortgage Insurance
If you are buying a non-HDB flat, you have the option between HPS or private MRTA. P.S. If you are buying a HDB, you can also opt for private MRTA. Buying private MRTA will exempt you from having to buy HPS. Some people choose to buy from a Private Mortgage Insurance as this gives them a holistic planning approach and gives them a dedicated financial advisor from which to plan their protection and investments.
Choice Of Joint MRTA Might Make Private Mortgage Insurance Cheaper
HPS is a government-led initiative to protect home owners. However, this doesn’t mean that HPS is necessarily the cheaper option. There are scenarios where private MRTA will offer you more value for your money. For example, if you are one of two co-owners of the property, you will need to buy two HPS policies. This is because HPS does not offer joint policies. Buying a joint MRTA through a private insurer can mean cheaper MRTA for you and your spouse.
Verdict: Private Mortgage Insurance Singapore
Flexibility To Enhance Your Coverage
HPS only offers the most basic protection for MRTA. Unlike HPS, private insurers allow you to add riders to your base MRTA plan. You can choose to add on riders like critical illness (CI) rider, waiver rider, retrenchment rider or medical expense riders. This means that you can buy more riders to enhance the coverage of your MRTA to protect you against more adverse life events.
Verdict: Private Mortgage Insurance
Private insurers understand that not everyone will make claims on their MRTA. Thus, if the claim rate is low, they might offer you a refund or discount on your premiums. This will apply only if you have not made any claims by the end of the policy term. If you are insured under HPS, you will not enjoy such benefit.
Verdict: Private Mortgage Insurance