Business Times
weekend 24-25 May 2003
How to protect that roof over your head
MICHELLE QUAH looks at what some mortgage insurance plans offer
HOME is where the heart is, and many of us – young couples especially – appear to have taken that saying to heart, as we are mired in mortgages trying to own that home.
Home sweet (and safe) home: mortgage protection insurance will, in a nutshell, pay for the outstanding portion of your home loan in the event of your death, permanent disability or even unemployment
But to ensure that your loved ones, and not the bank, will continue to own that home, the advisable thing to do is to get mortgage protection insurance.
Mortgage protection insurance will, in a nutshell, pay for the outstanding portion of your home loan in the event of your death, permanent disability or even unemployment. This, in effect, ensures that your spouse or family members will continue to have a roof over their heads should you no longer be able to service your mortgage payments for the reasons stated above.
The level of protection, the nature and timing of the payout, and the sort of benefits you will enjoy depend on the plan and insurance company you choose. Correspondingly, the premiums will differ with different plans and companies.
In this article, we set out the features and characteristics of the mortgage insurance plans offered by the major insurance houses in Singapore. This is meant only as a guide and is not an exhaustive coverage of the policies.
Do note that, in general, mortgage protection plans are term insurance plans with no savings element or cash surrender value – that is, you cannot redeem the plan for cash, nor will you get your money back when the policy matures, unlike whole-life or endowment insurance policies.
The sum assured under the policy reduces each year over the term of the policy, in line with the expected reduction in the mortgage loan, taking into account the repayment made in each year. And you can take up the protection at any stage of your home loan.
The premiums for all the plans outlined below have been calculated based on the following assumptions:
Insured: Male, aged 30, non-smoker
Home loan: $500,000 with interest rate of 5 per cent, except for Prudential, which has assumed an interest rate of 4 per cent. Note: the higher the interest rate, the higher the premium.
PRUDENTIAL
Prudential’s mortgage insurance, PruMortgage, offers financial protection in the form of a repayment of the home loan, in the event of the insured’s death or total and permanent disability.
In the event of death, PruMortgage will pay the amount remaining on the home loan in one lump sum. In the event of permanent disability, the policy will pay a certain amount every month – calculated to sufficiently cover the monthly mortgage repayments – for 12 months. If the insured continues to be totally or permanently disabled after 12 months, the remaining amount of the home loan will be paid in one lump sum.
Based on the profile above, PruMortgage’s yearly premiums are $635 for 25 years.
Customers can choose to add on a Crisis Waiver, for an extra $17.79 annually. With the waiver, if the life insured is diagnosed with a critical or terminal illness covered by Prudential, all future premiums for PruMortgage up to the sum assured will be waived. All future premiums for any disability benefits will also be waived.
AIA
AIA’s plan, called the Mortgage Reducing Term Assurance (MRTA), offers a very similar coverage to Prudential’s.
The only differences are: AIA’s plan automatically includes a premium waiver. In the event the insured is diagnosed with a critical illness covered by the plan, the remaining premiums on the policy will be waived.
The insured also only needs to pay premiums for three-quarters of the term of the policy – that is, for a 30-year insured home loan, the insured only needs to pay premiums for 22.5 years. The premiums for this plan are $575 a year, based on the assumptions above.
NTUC INCOME
Similar to Prudential’s is NTUC Income’s Mortgage Protection Plan.
In the event of death, the sum assured will be paid to the dependants. In the event of permanent and total disability, the sum assured for the relevant policy year is paid in one lump sum or over a few years. The yearly premiums are $532.35, payable for 30 years. You can also choose to add on a Living Benefit rider which will cover you for 30 major illnesses. The insured will be able to waive future mortgage protection premiums should he be diagnosed with any of the 30 major illnesses covered by Income. You will have to pay an extra $3,536.40 to add a 30-year Living Rider to your plan.
GREAT EASTERN LIFE
Great Eastern Life Assurance’s plans are very similar to Prudential and Income’s. Its MortgageCare policy will pay off the remaining amount of home loan outstanding in one lump sum in the event of death or total and permanent disability. Its yearly premiums are $655, for 24 years.
The MortgageCare (Living Assurance) policy covers one against death, total and permanent disability as well as any of 30 critical illnesses. The yearly premiums amount to $1,365 a year, for 24 years.
In addition to these two plans, Great Eastern also offers a product called Mortgage Protector which allows you to attach an Unemployment Cover rider. It is available at OCBC Bank and is underwritten by Great Eastern’s wholly-owned subsidiary, Overseas Assurance Corporation.
This means that, in addition to the basic mortgage protection plan that pays a lump sum benefit to settle the outstanding home loan in the event of death or total and permanent disability, the rider will also ensure that your monthly housing loan repayment will be taken care of for up to six months, if you should be retrenched unexpectedly and involuntarily. This feature is not offered by the other companies.
The Mortgage Protector will cost you $525 a year, payable for 27 years. If you add on a 25-year Unemployment Cover Rider for a sum assured of $2,600 a month, the annual premium is $241.80. The maximum term for the rider is 25 years.
All the plans listed above carry the same exclusion clause for the death benefit.
While the death benefit is payable regardless of cause, it excludes death by suicide within the first year of the plan or if the death is a result of capital punishment under the law. Permanent and total disability will typically have to occur before the insured reaches age 65 to be covered under the policy.
