The importance of mortgage insurance should never be underestimated, but neither should you overpay for your insurance.
Before we get into the meat of things, we first need to understand the basics.
What is Home Protection Scheme(HPS)?
HPS is a mortgage reducing insurance provided by CPF that protects your loved ones from losing their HDB if any of these 3 unfortunate events happen to you:
What is Mortgage Reducing Insurance?
It just means that the regular repayments made to your housing loan will gradually reduce the outstanding loan amount. Likewise, your sum assured(coverage) will reduce over time.
This graph shows you the difference between a regular term insurance(orange) and a decreasing term insurance(blue). HPS is the one in blue.
Don’t be confused that although your coverage reduces over time, your premiums are levelled throughout the whole policy term.
Is HPS Compulsory?
HPS is only compulsory if you use your CPF to pay for the monthly loan instalments on your HDB flat.
However, you can be exempted from being covered by HPS if you have the following insurance policies:
These policies must cover your housing loan up to the full term of the loan (eg. 30 years) or 65 years old, whichever is earlier, in the event of death, terminal illness or total permanent disability.
6 Reasons To be Exempted From HPS
Here are 6 reasons why you should consider getting your own life insurance instead of paying for HPS. (Life insurance I mean both term life and whole life insurance.)
1. Period of No Cover After Paying 1st Premium
Your HPS cover starts only after you meet ALL of the following conditions:
This means that during the period between the day you pay your first premiums and the day that you are the legal owner of the flat, your outstanding mortgage for your future home will not be covered.
However, if you have gotten your own life insurance, your coverage starts the moment you pay your first premium, even during the processing period.
2. HPS Is Dependent On Your Flat
If you decide to sell your HDB flat and buy another HDB flat, your HPS on your previous flat will be terminated and you have to purchase a new HPS for your new flat.
You will then have to pay premiums based on the age when you apply for your new HPS.
This usually results in two major consequences:
However, if you had your own life insurance policy, you can actually avoid having to deal with this sticky situation as your own personal insurance will cover you no matter how many times you decide to change houses.
3. No Critical Illness Coverage
HPS only covers Death, Terminal Illness and Total Permanent Disability, it does not cover Critical Illnesses.
If you were to contract early stage, intermediate stage or advanced stage critical illnesses, you will receive no payouts and you would still be obligated to pay your monthly loan instalments.
However, if you have your own life insurance which covers early to advanced stage critical illnesses, the payouts can be used to pay for your monthly loan instalments.
4. Inability To Customize To Your Needs
HPS coverage cannot be fully customised to suit your overall financial situation.
The amount of cover is limited and it depends on the outstanding housing loan on your flat.
For example, if you are paying 60% of the monthly housing instalments, and your spouse pays the remaining 40%, you should be insured for 60% of the loan and your spouse 40%.
The total share of cover per household should add up to at least 100%.
Alternatively, you may each choose to insure for a higher or lower share based on your individual circumstances, up to 100% share of cover per owner.
For example, if you and your co-owner are paying 60% and 40% of the loan respectively, you can both be insured for 100%. This means that CPF will settle 100% of the outstanding housing loan in the event of death, terminal illness or total permanent disability.
However, if you have your own personal life insurance, if can be tailored to your needs.
There is no limit to how much you want to cover yourself, and it’s fully dependent on your budget.
For example, some life insurance plans give you the option to buy a new Term Rider covering Death, Terminal Illness and Total and Permanent Disability, without providing evidence of health when one of the following significant milestone events occurs:
5. Payouts Restricted To Outstanding Mortgage
HPS payouts can only be used to pay your outstanding housing loans.
If you pass away, suffer from terminal illness or become total permanently disabled, CPF will settle the outstanding housing loan, up to the insured sum, with HDB directly.
If the sum assured is higher than the outstanding loan, the excess amount will be paid into your Ordinary Account. Your CPF savings will then be distributed to your nominees.
However, if you have your own life insurance, you and your family will have more control over your payouts. Your family don’t have to be obligated use your payouts to pay all your outstanding housing loans.
Because if you do pay off your housing loans early, there are some consequences that you will face, which I have written in this article.
6. No Cash Value
HPS has no cash value, so you will not receive any payouts once your HPS term is over or if you have trouble paying the premiums and lapse the policy.
However, if you have your own whole life insurance policy, and you run into trouble paying the premiums, you can use the cash value in your policy to pay for the premiums.
You also have the option to terminate and receive your payouts when you reach a certain age. The amount depends on the guaranteed and non-guaranteed portion of your life insurance plan and you may receive more than what you have paid!
Don’t get me wrong, the HPS is a great intiative by CPF, especially for people who have little knowledge on insurance and have difficulties affording their own life insurance premiums.
However, if you can afford your own life insurance premiums, a term life or whole life plan may just be a wiser choice.
How to apply to be exempted from HPS?
If you wish to be exempted from HPS, you can apply to be exempted from HPS via the following channels:
Online using my cpf
Login with your SingPass.
Submit an online application via My Requests.
Download and fill up Application for Exemption from HPS.
Mail it to:
Home Protection Scheme Department (HPS)
238B Thomson Road
#08-00 Tower B Novena Square