Understanding CPF
The Value Of The Home Protection Scheme
In Singapore, about 80% of people live in HDB flats and that is surely a vast majority. Most couples would want to buy a home in the first few years of being married and a HDB flat is normally the most affordable option.
With all the grants and subsidies, anyone can buy a HDB flat. But sometimes not everyone can hold on to his or her flat. Thus, this article will talk about how the Home Protection Scheme will assist in you holding on to your own home
What is the Home Protection Scheme (HPS)?
It is mortgage-reducing term insurance that protects you and your family from losing your HDB flat due to an unfortunate event.
The HPS will pay off your mortgage upon your death, the diagnosis of terminal illness or total permanent disability (TPD).
Say for example that in the event that you passed on, your spouse and children are still able to live the HDB flat without paying any more on the mortgage.
It only insures you till your age of 65 or until your mortgage are paid up, whichever is earlier.
ALSO READ: 5 Ways On How Your CPF Monies Can Help Your Loved Ones
Is it the same as a mortgage home insurance?
It is actually the same thing as mortgage insurance. But it only insures HDB properties.
Therefore, for private properties, the other option is to get mortgage insurance from an insurance company. It is however payable via your own cash.
HPS premiums are payable with your CPF Ordinary account.
The limitations of HPS
- It does not cover any critical illness
The need for mortgage insurance comes when you are unable to pay your mortgage. And the inability to pay for it comes in many shapes and sizes.
Three of them is already mentioned in the definition above. But one other thing that will make anyone not being able to pay his or her mortgage is upon getting critically ill. And this is not your normal flu and cough.
It can be a first stage cancer, being in a come or maybe a heart attack. All those are not insured via the HPS.
FYI: Terminal Illness is an illness that is likely to result in death within 12 months. Therefore Terminal Illness and Critical illness are indeed different things
- The percentage of coverage
How HPS works is that there must be a life insured (an individual) and what kind of benefit will pay out when something happens to that life insured.
There is also a percentage of the coverage that will be linked to the life insured. It can be 50%, 75% or even a 100%.
Example:
A husband and wife both have the same coverage of 50%. Say, for example, the wife passed away first and there is a still an outstanding mortgage of $200,000.
Since the coverage is only 50%, the husband will still need to pay $100,000 (50% of $200,000) of the mortgage.
The percentage of coverage will determine how much the HPS will pay for your mortgage.
As a result, if you do not have a 100% coverage, your spouse (the other joint owner) will still need to pay the mortgage just to keep hold of the flat.
- Retrenched and out of work
The other reason why you may not be able to pay your mortgage is that when you are being relief of work. In other words, retrenchment.
Your income can stop anytime but not your expenses.
Unfortunately, retrenchment is not covered under the HPS.
READ ALSO: Topping Up Your CPF: What Are The Pros & Cons?
How should I address the limitations?
- It does not cover any critical illness
One solution to this is to get yourself covered with a plan that covers critical illnesses. Upon the diagnosis, you can claim the lump sum of money (sum assured) to be used to pay for your mortgage.
Just take note that there are differences between a Critical Illness and Early Critical Illness plans. The former will only pay out the sum assured when you are diagnosed with late stages of the respective critical illness. It will not pay out when diagnosed in the early and intermediate stage.
Therefore, do be certain of the type of coverage that you have and not be disappointed in the future.
- The percentage of coverage
You and your spouse would have to review your HPS coverage.
The best case scenario is that both of you have 100% coverage. So in a situation when one of you passed on, the flat will be 100% paid for. No more mortgage left unpaid.
- Retrenched and out of work
Emergency fund.
That is all that you need. With an emergency fund, you are able to pay off your mortgage for the next few months without any difficulty.
If you want to keep your home, here is another reason for having or starting your own emergency fund.
READ ALSO: Useful Facts About The CPF Contribution & Allocation Rates
Putting and holding a roof on top of your head
Like mentioned from the start, everyone can buy a HDB flat but not everyone can hold on to it easily. It takes money to buy it and takes planning to hold on to it.
If you are not able to afford to leave a legacy behind for your loved ones, a paid-up HDB flat is a very fair alternative instead. After all, everyone needs a roof on top of their head.
That comes to the end of this article. Hope that this is beneficial for you and do share it with your family 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.
