UNDERSTANDING CPF
DPS? What Is The Dependants’ Protection Scheme?
From the name itself, you would roughly know what this is. To put it simply, Dependants’ Protection Scheme (DPS) is a type of insurance that you are paying premiums via your CPF Ordinary Account (CPFOA).
In particular, it is term insurance. That means that it will cover you for only a certain period of time. In this case, it will cover you till your age of 60.
You will automatically be included under DPS once you reach 21 years old and have made your first CPF working contribution. And yes, it is for Singapore Citizens or Permanent Resident since only those two are contributing to the CPF.
Therefore, if you fulfill the criteria above, most likely it means that you already have an insurance plan. A pleasant surprise for you first-timers knowing about DPS.
So what am I covered for?
DPS covers you for only three things. The benefit will be paid out when you pass away, suffer from terminal illness or Total & Permanent Disability (TPD).
Mainly, DPS is to benefit your dependents. They can be your spouse, children or parents. It is always better to nominate on how much of each party will receive so to avoid any potential conflicts between family members.
How much is the value of the coverage?
The maximum sum assured is $46,000. But the real question is, what is the value of $46,000?
If a 25-year-old who has a DPS, passed away 30 years later at age 55; what is the real value of the sum assured?
We will use the concept of Time Value of Money (TVM) to find out.
Future Value: $46,000
Years: 30 Years
Inflation Rate (Annually): 2%
Current Value: $25,395
What it shows is, that $46,000 of sum assured is actually equaled the value of $25,395 of “today’s money”.
Can you do a lot with $25,953? How long can your dependent survive with $25,395? Ask yourself that.
Due to inflation and Time Value of Money, the value of many things will change. And normally it does not go your way.
It only insures you until you reach 60
Like mentioned above, it is term insurance. That means that the period of coverage is indeed limited.
Nowadays, people are living longer and settling down even later. That means when they do have a child, they might still be supporting them when you reach your 60s.
If you only do have a DPS only, that death benefit may only support for a couple of months. And the child may not be able to go to pursue her college education.
Thus, ask yourself, is having the DPS only enough?
Do I need it?
For you who have not bought an insurance plan before, it is best if you keep it. It provides you and your dependents some financial protection.
Furthermore, the premiums are affordable. And if you can afford it, why should you stop the coverage. Buying insurance should depend on your affordability. If it is more detrimental to you compared to giving more advantages, it is no longer a good choice to keep it.
The great news is, you are paying via your CPF monies. Thus, you are not really affecting your cash flow.
It is enough, for now.
For those who think that the DPS is enough to take care of you and your dependents upon your demise or suffering, it might be a wrong assumption.
You should not totally depend on DPS but nevertheless, it is a good stepping-stone for you to start protecting you and your family. Think long-term and plan ahead if you want to have certain control of your future. Write down your goals and start.
That comes to the end of this article. Hope that this is beneficial for you and do share it with your family and friends. Till next time.
Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
