HPS vs MRTA – which is a better option for you?

Toa Payoh HDB Hub. Picture: iProperty

What is the Home Protection Scheme (HPS)?

HPS is a mortgage-reducing insurance scheme that allows you to be covered, for your outstanding mortgage loans which is governed by CPF board for CPF members.

It is compulsory for HDB flat owners to have a mortgage insurance in place if you are using the Central Provident Fund (CPF) savings to pay the outstanding monthly instalment of your home loan. The annual premium for HPS is deducted via your CPF Ordinary Account.

Upon the occurrence of death, total and permanent disability or terminal illness, the proceeds from the mortgage insurance will be used to pay off the outstanding home loan.

The one thing that could stand between you and your HPS policy, under than approval, would be your health. Applicants have to be in good health, without any serious pre-existing health conditions including (but not limited to) cancer, kidney/liver failure, diabetes, etc.

In the event that you are unable to apply for HPS, your other option would be to opt for private mortgage insurance instead.

What is Private Mortgage Insurance?

Private mortgage insurance are mortgage insurance policies that are offered by companies like Tokio Marine Insurance Singapore, AIA, Manulife, AXA, etc.

With a private insurance plan in place, homeowners can choose to opt out of HPS and thus apply for HPS exemption.

You might be wondering then, what are benefits of a private mortgage insurance plan?

Yishun Ave 4. Picture: iProperty

Why is it better than taking up HPS? Here’s why:

1. Option for level term insurance

Private insurance gives you the option to purchase long-term coverage. The coverage for a level term insurance remains unchanged throughout the coverage period. It can be more financially beneficial, as family members can use the excess proceeds for other immediate needs.

HPS, on the other hand, is a decreasing coverage without any reduction in premiums over the coverage period.

2. Difference in premiums

Both private mortgage insurance and HPS premiums are relatively similar. In some cases, private mortgage insurance can even be lower than HPS.

For HPS, there is only one rate available. The premium is automatically deducted from the owner’s CPF Ordinary Account.

As for private mortgage insurance, different policies have different payment plans, such as monthly, quarterly, bi-annual and annual terms to choose from. Your premiums will also be charged in cash.

3. Portability and transferability

Private mortgage insurance is portable and transferable to the next property. The premium is locked in at an earlier age throughout the coverage period.

Conversely, HPS is tied to the property and when the property is sold, it will automatically be terminated. When you upgrade to another flat or a private property, the same HPS plan cannot be used for the next property.

You will then be required to purchase another HPS or private mortgage insurance at that point of time. It will likely be costlier, as premiums will be based on the age during application, subject to any health condition(s).

Thus, we encourage property owners who have plans to upgrade or purchase a second property to leverage on level term insurance as it will be more financially beneficial.

4. Claims payout

In the event of a claim, HPS proceeds would be paid directly to HDB or the mortgagee. This means that the homeowner will not receive any of the funds; instead, HDB/the mortgagee receives an amount equivalent to the mortgage remaining thus, redeeming your loan.

Private mortgage insurance proceeds will be paid to the beneficiary, who will have the flexibility to use the excess cash for other means, such as emergency healthcare expenses.

5. Joint-life mortgage insurance

Private mortgage insurance allows HDB owners to purchase with one joint-life application. In the event of a claim, the policy will be paid out to the surviving owner.

HPS does not have the option to purchase joint-life. It has to be two separate individual coverages.

6. Waiver of premium

With a private mortgage insurance policy, you have the option to add a waiver of the premium rider to the main policy. In the event that either flat owner is diagnosed with a critical illness, all future premiums will be waived off.

HPS does not have the option to purchase the waiver of premium rider.

7. Option to add critical illness coverage

In the event of a diagnosis of a critical illness, it can be costlier to pay for medical and treatment expenses as compared to death, unfortunately. Private insurance gives you the option to add all stages of critical illness coverage.

HPS does not give policyholders such an option.

Applying for HPS exemption

Think the aforementioned points add up and have decided to purchase an MRTA plan? Once you have done so, you can exempt both you and your spouse from paying any more HPS premiums.

Apart from MRTA, you can also apply for HPS exemption should you already have at least one of the following insurance policies:

  • Whole life
  • Term life
  • Endowments
  • Life riders (must be attached to basic policy)

The criteria are that such policies would have to cover your outstanding housing loan, either up to age 65 or until the full term of the loan, in the event of death, terminal illness or total permanent disability, whichever earlier.

Additionally, you may have your exemptions revoked if the insurance policies are discontinued or altered.

This article was first published in Property Quotient.