All about Home Protection Scheme and Mortgage Insurance

[Dennis Ng]

Many people are not fully informed of how ?Home Protection Scheme? (HPS) works. If you have a Housing Loan, my opinion is that you better have some HPS or Mortgage Insurance to ensure that should anything happens to you, your family will not be burdened by having to pay your ?share of the Housing Loan instalment?.

Here?s what I wrote for your easy reference. If you got other questions, feel free to call me at 63399 255 or email to me at dennis@leverageholdings.com

You can also ask questions at ?Leverage Internet Discussion Forum? http://www.housingloansg.com/forum/phpB ... ebb046e8f8

Cheers!

Dennis Ng
Leverage Holdings Pte Ltd
6737 8801 or 6339 9255
http://www.leverageholdings.com - we help you get BEST deal in Housing Loans, Business Loans and Motor Insurance in Singapore!

http://www.HousingLoanSG.com

http://www.MotorInsuranceSG.com

All about Home Protection Scheme (HPS)

The reported news on a widow whose claim on her Home Protection Scheme (HPS) (a mortgage reducing insurance provided by CPF) was rejected highlighted the deficiencies in HPS and the problem that most people are not aware of these deficiencies and what risks are they subjected to.

Fret not, as I've summarised them below:

What is Home Protection Scheme (HPS)?
HPS is a mortgage (housing loan) reducing insurance plan provided by CPF. Similar plans are offered by Insurance cos and unlike HPS which is rigid, plans by Insurance cos can be "tailored" to suit your needs.

Is HPS compulsory?
CPF has made HPS compulsory from 1 Nov 1981 for anyone who purchase a HDB flat (whether new or resale flat) and who uses CPF to pay for the monthly instalment repayment (whether partial or fully).

It is not compulsory for someone who uses Cash to buy a HDB flat and ONLY uses cash to pay for monthly instalment.

What most people don't know:
It's not compulsory to get the coverage by CPF, you can actually get your own coverage from Insurance cos and you most probably would if you know the deficiencies of HPS from CPF

Deficiencies of HPS compared to plans offered by Insurance company

1. Strangely, the HPS cover only take effect after you take legal possession of the flat. For Insurance cos, once premium is paid, even if the application is still under underwriting (processing), a temporary cover for accidental death takes effect immediately. In this case, the widow's husband died from accident and she can claim if she had taken an insurance policy from Insurance co. Please note that in this case, CPF already approved the HPS application.

2. Cover is specific to the flat. If you sell your HDB flat in future, even if you buy another HDB flat, the existing insurance policy will be terminated and you have to purchase a new policy. You will have to pay premium based on you age then, thus you definitely pay higher premium. Someone in 40s typically pays about 50% higher premium compared to someone in 20s, so the difference can be substantial.

Most importantly, the risk is should you develop any health condition before you purchase the new house, you run the risk that you will be rejected HPS cover. This can happen and has happened. If you get a similar plan from Insurance co, this does not happen as your policy can be continued no matter how many times you moved house. Rarely do people stay in the same house throughout their lives, so this risk is something that is serious yet overlooked by most people.

3. it only covers death and total permanent disability. It doesn't cover critical illnesses. Thus, even if you have HPS and a critical illness strikes, you still need to continue to pay the housing instalment. Plans from Insurance cos can be tailored to cover critical illness.

4. Rigid and inability to suit your needs HPS is rigid and there's only 1 specific plan. Each person's situation differs and you can actually tailor a plan to suit your needs if you get it from an Insurance co.

Insufficient information given to public. If you buy a HDB flat, at HDB office, they will just tell you HPS is compulsory and they're deducting the premium from your CPF a/c. The problem is you're not told:
1. what HPS covers and what it does not cover
2. that you can get coverage from other Insurance cos
3. difference in coverage between HPS and plans by Insurance cos.

As a result, most people just "blindly" accepted HPS without considering the possible consequences.

If you find this information useful, please forward it to your friends so that such tragic cases will not be repeated in future.

[jon]

Hi Dennis,

Can we say that since HPS will help offset the outstanding loan amt he owes upon a person's death/disability, this can be the 2nd reason not to repay the entire housing loan, on top of the reason that the 2.5% CPF compounded interest by itself would already "outperform" the reducing 2.6% HDB loan interest?

Of course, by investing in the right instruments at the right time, the yield can potentially be higher than the 2.5% CPF interest.

[Dennis Ng]

Hi Dennis,

Can we say that since HPS will help offset the outstanding loan amt he owes upon a person's death/disability, this can be the 2nd reason not to repay the entire housing loan, on top of the reason that the 2.5% CPF compounded interest by itself would already "outperform" the reducing 2.6% HDB loan interest?

Of course, by investing in the right instruments at the right time, the yield can potentially be higher than the 2.5% CPF interest.

yup.

[h229229]

Hi Dennis,

Can I take a mortgage insurance for my second property still under construction (not yet TOP)?

Thanks

[Dennis Ng]

Hi Dennis,

Can I take a mortgage insurance for my second property still under construction (not yet TOP)?

Thanks

Hi h229229,
you can and you should since now the repayment of the loan depends on your ability to continue to earn an income and NOT paid by tenant.

For investment properties with rental income, one does NOT need to buy Mortgage Insurance equivalent to 100% of the loan amount, since the loan is mainly paid by Tenant and not dependent on your (Property Owner)'s income.

Most of the Rich people I know do NOT buy Mortgage Insurance on their investment properties, they merely set up a Contingency fund for each property they acquire (for the reasons I mentioned).

[h229229]

Thanks Dennis,

Is there any recommended Insurance Company for Mortgage Insurance / type of mortgage insurance?

Regards

[Dennis Ng]

Thanks Dennis,

Is there any recommended Insurance Company for Mortgage Insurance / type of mortgage insurance?

Regards

Hi h229229,
things constantly change. If you want, I can refer you to an Independent Financial Planner who can help you get and compare quotes from different Insurance companies.