Your death could cost your family their home if you are not covered, says JASON ONG
RECENTLY, my client Mr Wong called me for mortgage insurance advice. He had just bought a semi-detached house for close to $2 million. He took a loan of $1.2 million over 15 years, and was looking for a mortgage reducing term insurance that will pay off his mortgage in case of his death or total and permanent disability (TPD) while the loan is not fully paid.
Mr Wong told me that he will never forget the time that he and his younger siblings lost their family home when his father died of a heart attack some 30 years ago, leaving his mother struggling to raise the four of them.
Certainly, he does not want this to happen to his homemaker wife and three children.
‘When I pass away, the last thing that I would want to put my family through is to also lose the roof over their heads,’ he said.
In Singapore, mortgage insurance is not made compulsory for private property owners and those who are not using CPF to pay their monthly HDB housing loan repayments. However, the Home Protection Scheme, or HPS, is mandatory for HDB/HUDC flat owners who service their mortgage loans with CPF funds.
Many private property owners baulk at mortgage insurance either because of inertia or misconception that it’s an unnecessary cost. Without mortgage insurance coverage, however, life could be a lot harder financially for the family if things go wrong.
Over the past years, there have been newspaper reports on households having to surrender their private properties because the sole breadwinner passed away without mortgage insurance coverage. As such, I always advise my clients who own private properties to have mortgage insurance to protect their homes and families.
As the name implies, mortgage insurance safeguards your home and family against the unexpected, so that they will not be burdened with mortgage repayments or face the possibility of losing their home. It is available on a single or joint-life basis. If you and your spouse jointly own the home, you may want to consider a joint-life mortgage policy which pays out on the ‘first death’.
You can decide how long you want the policy to cover you, but most people have it to run concurrent with their mortgage.
The premium will increase with the mortgage size and the length of your term. In addition, age, gender and whether you smoke are big factors in determining how much you pay. Smokers pay a lot more than non-smokers, simply because they are more likely to make a claim. For example, based on the quotation from a local insurer, Mr Wong will need to pay around 40 per cent more if he were a smoker.
Most of the mortgage insurance plans are reducing coverage whereby the sum assured decreases annually and the rate of reduction depends on the mortgage interest rate and the policy term.
Some of the common benefits and features: