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Mortgage insurance is also known as a “reducing term insurance.” Its main purpose is to ensure that the home owner’s home loan will be paid in the event of their death, disability or critical illness diagnosis.
The sum assured of a plan is traditionally linked to the home loan’s duration (e.g. 35 years repayment). Ideally, coverage should decrease alongside the policy holder’s remaining home loan and interest rate.
The suitability of different mortgage insurance plans will vary depending on your circumstances, but boils down to a few key questions:
Most importantly – you should also be able to afford the premiums, so make sure you are comparing different providers to ensure you are getting the best deal.
It should be stressed that mortgage insurance plans should not be underestimated and can have a serious impact much further down the line if a policy hasn’t been examined thoroughly. While you can do all the heavy lifting yourself, we also recommend that you speak to your financial advisor for that extra peace of mind.
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The sum assured of a policy tends to reduce annually and in proportion to your remaining loan amount and duration. Term insurances specifically provide more levelled and consistent coverage throughout the policy term.
There are a lot of terms that get thrown around so to provide some clarity we’ve broken down their definitions below:
The cooling off period after you purchase your policy allows for some wiggle room where you can make changes to your policy, or even reject it altogether if you happen to come across a better one. Make sure you find out how long this period lasts for however, and when it actually begins, as it varies with different providers.
When getting quotes make sure you are comparing the same thing – term life policies generally have lower premiums than permanent life policies thus the big difference in price, but they are two very different things! It’s important to examine the detail and read the fine print – not just go by the monthly premium.
The main idea behind life insurance is to ensure your beneficiaries are protected financially in the event of your death. Despite some permanent life insurance policies having potential to allow policy holders to earn cash value over time, policies should be considered as a means of protection first, and not as a method of investment.
Riders or endorsements are extra ways to add customization to your policy to better suit your needs and budget. When you decide on a policy, make sure to ask about what riders are available to be purchased alongside.
Not all companies are the same! It is important to do the background on the insurance providers and ensure they are reliable prior to committing to one of their products.
Riders available for mortgage insurance vary depending on what you want, commonly selected extras include coverage for scenarios such as:
Mortgage insurance providers like to match the typical maximum loan tenure for mortgages from banks, so you can expect coverage for up to 35 years.
For the majority of insurers, yes (the premiums for death and total and permanent disability benefits especially).
A caveat to bear in mind is that premiums for riders such as the Advance Stage Critical Illness and the Critical Illness Waiver are not guaranteed. These premiums may change depending on the insurer’s future claims history.
Surprisingly, no, many providers allow you to take policies out without a home. However, if you want to take out a policy that provides coverage is above a certain monetary threshold, some companies may request for mortgage statements. If you fall below this threshold, the provider may waive this requirement.
Yes. Also, if your private coverage is adequate enough (and covers mortgage reducing term insurance), you can apply for HPS exemption.
No. Mortgage insurance can only be paid in cash.
Mortgage reducing insurance is a relatively low-cost way to protect your mortgage liabilities, or, if you want more levelled coverage, term insurance may be a better option.
If you own a private property or executive condominium, no – this also applies to the tenure of the coverage.
It’s not compulsory, however some banks have a prerequisite of obtaining insurance prior to granting access special home loan rates. Mortgage insurance is recommended for those who own a HDB and wish to seek HPS exemption.