One of my missions of starting this finance blog is to share with readers some useful tips on financial matters. In relation to one of my previous articles, a reader has raised a very good question on Home Protection Scheme (HPS). So today, I am going to share some information pertaining to how you can apply for exemption from HPS.
First of all, HPS is compulsory if you are using your CPF savings to pay your monthly housing loan installments on your HDB flat. Of course, there are some residents who are cash rich and do not use their CPF savings to pay their HDB mortgage payments. For this group of people, HPS is not compulsory.
But assuming you are using your CPF savings to service monthly HDB loan and would like to apply for exemption from HPS, then you may apply to CPF Board for exemption.
Most people thought that they should write to HDB when applying for exemption of HPS. The confusion is probably because when applying for coverage under HPS for HDB loan, you can apply for HPS cover at HDB Hub or any HDB branch office when you are applying to use your CPF for the monthly housing instalment.
But before you rush into applying for HPS exemption, there are some important things to consider carefully. After all, our home is one of the most important assets and a responsible wealth builder would ensure that their wealth is protected sensibly.
An important thing to note is that HPS is a mortgage reducing term insurance plan. What this means is that over the years, the sum assured, and not the premiums to be paid, would be reduced. And then there are the term life policy, which provides a fixed sum assured throughout the coverage period. Due to the difference on the sum assured, the cost of mortgage reducing insurance is usually much lower than a typical term life policy.
Some people do not like to over-insure their home loans, so mortgage reducing term insurance plans like HPS would make sense. However, if you already purchased whole life or term life insurance plan and do not want to waste money on HPS, consider applying for HPS exemption. But like all government policies, there are conditions to fulfil.
You can apply for HPS exemption if you already have one or more of the following insurance policies:
- Whole Life
- Term Life
- Life Riders (must be attached to a basic policy)
- Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider
You must make sure these policies must cover your outstanding housing loan up to the full term of loan or 65 years old, whichever is earlier, in the event of death, terminal illness or total permanent disability.
Please note that your exemption from HPS may be revoked if any of the insurance policies used for the exemption is discontinued or altered. Subsequently, the CPF Board would extend a HPS cover to you based on the declared percentage that you were exempted for, subject to the CPF Board’s terms and conditions. If you wish to be exempted from HPS again, you will need to reapply for it.
You can submit online application for exemption from HPS through your CPF account via “My Requests”. It is a very straightforward process. However, the financial planning aspect may not be so simple.
Ask yourself whether your existing life policies are adequate to cover the mortgage loan and whether there are plans to refinance or do partial repayment of your mortgage loan in future. These factors would impact your need for HPS and the need to adjust HPS coverage.
For my family, we are moving to Executive Condominium soon, so HPS is not applicable for us. Because of this, I had upgraded my Aviva term policy coverage to ensure that my mortgage loan is covered. This is to ensure that my family would not have to endure financial difficulties in the event that I passed away or suffered from permanent disabilities.
When buying insurance, the priority should be to protect your income ability rather than to make money out of it. Hence, you should assess the level of protection you desire for your family. There are many different type of insurance policies out there like mortgage, whole life, term life and investment-linked. They serve different purposes and you must understand the features to ensure that your needs are met.
I have read many articles of Singaporeans claiming to lose their faith in insurance after getting insurance pay-outs way below their expectations. My thinking is that if you want maximum protection and lump sum pay-outs, go for term life policies. In the past, many Singaporeans had been sold whole-life and investment-linked policies because of the lucrative commission fees that insurance agents get to pocket from selling such policies. Driven by the fat commission fees from selling whole-life and investment-linked insurance policies, very few financial planners would market term life policies in the past.
In the past, I used to own two whole life policies but have surrendered one many years ago. Yes, indeed I suffered some losses but thankfully the bonuses help to offset some of the damage. Your insurance agent would likely to discourage you from surrendering your whole life policies because of the potential losses you would incur. While this is true indeed, the more likely reason is because once you surrender your policy, his commission fees may cease as well.
Nonetheless, despite the above, I believe there are some merits in buying whole life insurance policy because of the annual bonuses. That is why I kept one whole life insurance policy and supplement it with term life policies and private health insurance.
Like all things in life, things are always evolving and your financial situation may have changed as well. So, make it a point to review your insurance strategy from time to time.
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