Despite having been writing for over 4 years now, there are still so many aspects of personal finance that Heartland Boy hardly pays notice or is simply ignorant of. Well, one of the benefits of being plugged into the personal finance community is the opportunity to plug the gap by learning from fellow bloggers. A recent article from Investment Stab on the CPF Home Protection Scheme (‘HPS’) inspired Heartland Boy to review his own HPS. After further online research and a quick discussion with his financial advisor, he successfully applied to be exempted from the CPF Home Protection Scheme.
What Is the Home Protection Scheme (‘HPS’)?
The Home Protection Scheme is a mortgage-reducing insurance that protects members and their families against losing their HDB flat in the event of death, terminal illness or total permanent disability. (Source: CPF) Should any of these events occur to the life assured, the payout from HPS would be used to pay off the remaining mortgage, ensuring that the surviving tenant need not worry about meeting this obligation anymore.
HPS insures CPF members up to age 65 or until the housing loans are paid up, whichever is earlier. If CPF savings are used to pay for monthly housing loan instalments on your HDB flat, it is required for the home owner to purchase HPS. However, home owners can apply for HPS exemption if they already have one or more insurance policies (eg: whole life/ term life etc) that can cover the outstanding housing loan up to the full loan term or 65 years old, whichever is earlier. This last piece of information only came to Heartland Boy’s knowledge after he did more due diligence.
Why I Apply To Be Exempted From CPF HPS
During your HDB key collection date, one would be contemplating about a multitude of to-do tasks while also juggling a myriad of emotions. Even the ever so meticulous Heartland Boy did not pay much attention to the HPS and simply assumed that it was compulsory. As aforementioned, it was only a fellow blogger’s article that spurred him to do more research online that convinced him to apply to be exempt from the CPF HPS.
1. HPS Is Not Value For Money
For the reasons cited in this article, Heartland Boy and Heartland Girl collectively decided to opt for a $283K HDB loan for a tenure of 14 years. To protect against this sum assured, the Heartland Couple was paying a combined premium of $306 for a total of 12 years (90% of HPS Cover period) under the Home Protection Scheme. Note: Heartland Boy subsequently took advantage of the low interest-rate environment as a result of Covid-19 to refinance into a very cheap home loan. Obtain the cheapest mortgage package from PropertyGuru Finance.
Take note of the formula used to calculate the payout of the Home Protection Scheme during the term should any of the events occur to the life assured. As the HPS is a mortgage reducing term insurance, the Sum Assured reduces with each month the life assured pays the mortgage.
During the discussion with his financial advisor, he informed Heartland Boy that the prices of term insurance have been drastically reduced several years ago that make them much more compelling than a mortgage reducing term insurance. True enough, when Heartland Boy went to obtain quick online quotes for a term-life policy from some of the insurance providers in Singapore, a lesser premium payable would have already insured both tenants for a total of 20 years for a fixed sum of $280K! This means protection for a longer period, for a larger amount (since sum assured does not decrease overtime) at a lower cost! Furthermore, the payout arising from a term life insurance policy is more flexible in its use compared to the HPS since HPS claims can only be used for paying the outstanding mortgage, with the excess (if any) deposited into the insured member’s Ordinary Account.
2. Possible case of being over-insured
Shortly after Olympia was born, Heartland Boy did a comprehensive review with his insurance agent on the various insurance policies for his child and family. During the assessment, they already accounted for the mortgage of the house as a recurring liability. Therefore, given that Heartland Boy was opted into the HPS when he took his HDB loan, it gave rise to a possible case of over-insurance where coverage became excessive. After weighing the pros and cons, Heartland Boy thinks that it is wiser for his family to save on the annual HPS premium and redirect it to other purposes instead.
How To Apply Online To Be Exempted From CPF HPS?
After overpaying for almost a year, the good news is that it is a relatively straightforward process to apply online to be exempted from the CPF Home Protection Scheme. Here is the step-by-step procedure on how to do it.
1. Login to your account on CPF webiste via SingPass
2. Under My Requests, look for Home Protection Scheme and subsequently, Apply To Be Exempted From HPS
3. Key in your property address, select 100% exemption and your Spouse CPF number
4. Provide the policy providers and policy numbers of your existing insurance policies (eg: term, whole life, endowment, mortgage reducing term assurance). This is where it pays to have such information collated so that it can be easily retrieved.
5. Once you are done with the following steps, repeat the same steps for your joint tenants (likely to be your spouse) if it is held under joint tenancy.
6. Several business days later, you should be receiving good news from CPF as shown in Diagram 3.
The premium that you have paid earlier would also be refunded into your CPF OA on a pro-rata basis. It was very efficient as Heartland Boy’s refund was credited the very next day.
Yes, there’s also news of the government giving premium rebates for CPF members under the Home Protection Scheme. Heartland Boy likes to reiterate that it isn’t obligatory from CPF to do so, it isn’t guaranteed and the most recent occurrences were in 2015 and 2006.
For those who would like to know how much they have been paying on their HPS, simply examine the transactions in your CPF Ordinary Account or have it estimated using the CPF HPS premium calculator.
Disclaimer: Heartland Boy is not a licensed financial advisor. Please speak to a qualified certified financial planner to evaluate your own insurance needs.