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. Yet, it is almost a sin to buy a home without getting a mortgage insurance as you expose yourself to a Home Loan.
Image credits: Manulife Bras Basah ground floor, just outside of MRT exit, mortgage insurance singapore, Paul Ho, iCompareLoan.com
In this article, we are going to share with you everything you need to know about mortgage insurance, i.e. the “What”, “Why” and “How Much”.
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 mortgage insurance. The lump sum received will be used to pay off your home loan, which eliminates the worry of paying your mortgage.
Is Mortgage Insurance Compulsory in Singapore?
Mortgage Insurance is not compulsory in Singapore for Private properties, i.e. Condominiums and landed houses and executive condominiums (EC).
If you buy a HDB flat, you must then buy mortgage insurance called the “Home Protection Scheme”
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 mortgage insurance. But mortgage insurance isn’t something that is unfamiliar to us. Mortgage insurance is a special type of term insurance. But unlike term insurance which continues to have a fixed sum assured and premium payable, mortgage insurance doesn’t have a fixed sum assured nor a fixed premium.
For mortgage insurance, the sum assured amount decreases with time. This is because as time goes by, you would be slowly clearing your mortgage. Since mortgage insurance 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 Mortgage Insurance, 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 mortgage insurance 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 mortgage insurance 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 mortgage insurance 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 mortgage insurance through a private insurer. Every Singapore-based private insurer offers mortgage insurance policies that you can buy from. You can either get your mortgage insurance through your personal financial consultant, banks or contact your preferred insurer through their online channel.
Image Credits: Prudential at Newton, Mortgage Insurance Singapore, Paul Ho, iCompareLoan.com
Here are some mortgage insurances you can get from the market from each Singapore-based private insurer.
|Insurance Company||Mortgage Insurance Singapore – Plan Name||Mortgage Insurance Singapore Benefits|
|Tokio Marine Life Insurance Singapore Ltd||TM Mortgage Protection (RP)||· Joint Life Cover· Limited Premium Payment Term· Critical Illness Benefit Rider|
|Zurich Life Singapore||Z Protect||· Critical Illness Benefit Rider· Accelerated Critical Illness Benefit Rider· Accelerated Disability Benefit Rider· Waiver Of Premium Rider|
|Manulife||ManuProtect Decreasing||· Limited Premium Payment Term· Joint Life Cover· Terminal Illness Benefit|
|Aviva||MyProtector – Term Plan||· Option To Increase Coverage Without Underwriting· Conversion Into Whole Life Or Endowment Without Underwriting· Flexible Premium Payment Term· Premium Waiver Benefit Riders· Critical Illness Riders|
|HSBC Insurance Singapore Pte Ltd||Mortgage Protector||· Joint Life Cover|
|Prudential Assurance Company Singapore Pte Ltd||PRUMortgage||· Flexible Premium Payment Term· Terminal Illness Benefit· Joint Life Cover· Simplified Underwriting|
|Great Eastern Life||MortgageCare||· Joint Life Cover· Critical Illness Waiver Rider· Limited Premium Payment Term|
|NTUC Income Insurance Co-operative Limited||Mortgage Term||· Joint Life Cover· Payor Premium Waiver Rider· Enhanced Payor Premium Waiver Rider· Dread Disease Premium Waiver Rider· Early Cancer Waiver Rider|
|Etiqa Insurance Pte Ltd||eProtect Mortgage||· Joint Life Cover· Critical Illness Waiver Rider· Limited Premium Payment Term· Flexible Premium Payment Term|
Table 1: Types of Mortgage Insurance offered by Tokio Marine, Zurich Life, Manulife, Aviva, HSBC Insurance, Prudential Assurance, Great Eastern Life, NTUC Income Insurance Co-operative, Etiqa Insurance, collated from various public sources by iCompareLoan.com
|End of Policy Year||Tokio Marine Mortgage Protection (RP)||Aviva MyProtector||Manulife ManuProtect Decreasing|
|Premium Paid To Date||Guaranteed Death Benefit||Premium Paid To Date||Guaranteed Death Benefit||Premium Paid To Date||Guaranteed Death Benefit|
Table 2: An Actual Benefit Illustration quote from Tokio Marine Mortgage Protector, Aviva MyProtector and Manulife ManuProtect Decreasing Sep 2018 for a 35 year old male (non-smoker) with a sum assured of $1m, collated by iCompareLoan.com
Image Credits: AIA along Alexandra Road, Paul Ho, iCompareLoan.com
Home Protection Scheme (HPS) vs Private Mortgage Insurance
If you are buying a non-HDB flat, you have the option between HPS or private mortgage insurance. P.S. If you are buying a HDB, you can also opt for private mortgage insurance. Buying private mortgage insurance 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 Mortgage Insurance 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 mortgage insurance 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 mortgage insurance through a private insurer can mean cheaper mortgage insurance for you and your spouse.
Verdict: Private Mortgage Insurance Singapore
Flexibility To Enhance Your Coverage
HPS only offers the most basic protection for mortgage insurance. Unlike HPS, private insurers allow you to add riders to your base mortgage insurance 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 mortgage insurance to protect you against more adverse life events.
Verdict: Private Mortgage Insurance
Private insurers understand that not everyone will make claims on their mortgage insurance. 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
Image Credits: NTUC office at Bras Basah Road, Paul Ho, iCompareLoan.com
Mortgage Insurance Singapore – why is it Necessary?
Mortgage Insurance Keeps The Roof Over Your Family’s Head Even If You Become Jobless due to Critical Illness
Events like accidents or death are life changing, not just emotionally, but also financially. This is even more so if you or your spouse is the sole breadwinner. Losing him/her to an accident or to a sudden struck of an illness can significantly hamper your household’s finances.
For example, if you were to meet with an accident that results in total and/or permanent disability (TPD), you will lose your ability to earn income. Since you can no longer afford the mortgage payment, the bank has the legal right to foreclose your home if you miss any mortgage payment. Without a mortgage insurance, you will be forced to sell your house to pay back the loan. Your family will end up without a roof over their head. But if you had bought a mortgage insurance Singapore, the mortgage insurance will settle the mortgage payment for your family.
Mortgage Insurance Singapore – Protects your family from Home Loan exposure
Your home might be one of the biggest financial assets that you possess. However, property is one of the most illiquid assets. This can lead to liquidity risk, which can become a tricky problem. In the event of an accident, you might need surgery for the doctor to save your life. But surgeries come at a cost and it might deplete your savings and your emergency fund.
What happens then when you do not have enough cash to pay for your surgical cost and/or your mortgage payment? You will need to sell off your home in a hurry, which puts you at the mercy of buyers. Buyers might take advantage of your situation to pay you below market price for your home.
How Much Will Your Mortgage Insurance Singapore is Costly? How Much?
There are a few factors that will determine how much your mortgage insurance cost. These factors include outstanding loan amount on your home loan, loan tenure, your age, current health condition, credit score, current income and whether you are a co-owner.
Outstanding Loan Amount On Your Mortgage
Every life insurance policy comes with a sum assured. In the case of mortgage insurance, the sum assured is your outstanding loan amount on your current home loan. When your home loan amount is larger, it means that you require a larger sum assured on your mortgage insurance. This will directly drive up the cost of your mortgage insurance.
How it affects you: Greater outstanding loan amount leads to higher cost of mortgage insurance
Loan Tenure for Mortgage Insurance Singapore
Every home loan comes with a loan tenure. According to MAS, the maximum duration of loan you can take is 30 years or until you are age 65. Thus, most mortgage insurance are quoted for a coverage term of 30 years. However, if your loan tenure is shorter than 30 years, you can reduce the coverage term of your mortgage insurance. The shorter your coverage term is, the less risk your mortgage insurer needs to partake. Thus, your cost of mortgage insurance will be lower.
How it affects you: Longer loan tenure leads to higher cost of mortgage insurance
Age is a key driver of risk and cost of insuring your life. As you age, your health is likely to be in a poorer condition. This increases the odds of you dying before your loan is completely paid up. Thus, insurers will use age as a factor to determine how much is the right amount to charge you for your mortgage insurance.
How it affects you: The older you are, the more expensive your mortgage insurance is
While age is a proxy to your health condition, your health condition itself is the best data point an insurer can get to understand about the risk of insuring your life. If the insurer determines that you have a higher risk of death judging by your current health condition, you need to be prepared to pay more for your mortgage insurance.
For example, if you have any pre-existing condition like heart problems or cancer, you can expect your insurer to increase the price of your mortgage insurance. (Note: They might even reject your mortgage insurance application). If you are a smoker, you are likely to be in poorer health. Therefore, you can also expect to pay more for your mortgage insurance than a non-smoker.
To gauge your current health condition, the insurer might require you to undergo a routine body check-up. They will also ask you to sign off on a declaration form to state your current pre-existing health condition.
How it affects you: The poorer you are in health, the more expensive your mortgage insurance is
Based on these factors, the insurer (or CPF) will determine how much to charge you for your mortgage insurance. Generally, the premiums you can expect to pay for a mortgage insurance ranges from $100 a month to few hundred dollars a month. Plan your finances carefully.
But before you think about how to save on your mortgage insurance, you need to first get your home loan right. Getting your home loan right can save you thousands of dollars! Let iCompareLoan’s mortgage consultants help you find the best home loan to save you from spending unnecessary interest payment on home loans. You can also do your own searching on iCompareLoan’s loan comparison tool.