Do not overlook mortgage insurance

Business Times. Sep 10, 2009.
By Jason Ong

In Singapore, mortgage insurance is not made compulsory for private property owners and those who are not using CPF to pay their monthly HDB housing loan repayments. However, the Home Protection Scheme, or HPS, is mandatory for HDB/HUDC flat owners who service their mortgage loans with CPF funds.

Many private property owners baulk at mortgage insurance either because of inertia or misconception that it's an unnecessary cost. Without mortgage insurance coverage, however, life could be a lot harder financially for the family if things go wrong.

Over the past years, there have been newspaper reports on households having to surrender their private properties because the sole breadwinner passed away without mortgage insurance coverage.

You can decide how long you want the policy to cover you, but most people have it to run concurrent with their mortgage.

The premium will increase with the mortgage size and the length of your term. In addition, age, gender and whether you smoke are big factors in determining how much you pay.

Most of the mortgage insurance plans are reducing coverage whereby the sum assured decreases annually and the rate of reduction depends on the mortgage interest rate and the policy term.

Some of the common benefits and features:

• Total and permanent disability (TPD) coverage up to age 70. The policyholder will receive the sum assured in instalments or a lump sum up to $2 million upon diagnosis of TPD;
• Single or joint-life coverage is available for joint homeowners;
  
• Premium payment term usually stops a few years before the end of policy term, while you continue to enjoy the coverage;
• Option to add waiver of premium rider so all future premiums will be waived upon diagnosis of one of the 30 critical illnesses;
• Mortgage insurance does not normally cover critical illness, which means that in the event of a critical illness such as cancer, you will still need to pay the monthly mortgage repayments. Therefore, you may need to buy a separate policy for critical illness cover;
• Most plans will not cover any disability caused by riot, civil commotion and terrorist activities.
  

Buying a home will likely be the largest undertaking you make in your lifetime, so protecting it should be a key part of your overall financial plan.

Mortgage insurance will ensure that your dependants will not have the financial worry of trying to find the mortgage repayments or having to sell the property or downsizing in the event of your untimely death.

If you are looking for a mortgage insurance policy, do shop around as premium rates and features offered can vary greatly from insurer to insurer. If unsure, you should seek help from an unbiased adviser to compare and advise you.