Those who have purchased HDB properties before may vaguely remember signing the Home Protection Scheme (HPS) form as part of the numerous paperwork needed to be done in order to obtain the keys to your new home. Few understand the implications of signing this form and how it could possibly affect their mortgage payments in the future.
This article will provide a comprehensive breakdown of this scheme and better equip future owners in purchasing their first HDB unit.
What is the Home Protection Scheme?
In short, the HPS is a mortgage-reducing insurance that protect homebuyers and their families against losing their HDB unit in the event of death, terminal illness or total permanent disability before their mortgage is paid up. Administered by the Central Provident Fund (CPF), HPS is compulsory for Singaporeans who choose to service their monthly home loan payments using their CPF monies—whether partially or fully.
HPS only covers HDB or DBSS flats and does not cover private residences such as condominiums, executive condominiums, HUDC flats, and landed properties.
HPS provides coverage for the outstanding mortgage amount until the age of 65, or until the housing loan are fully paid up, whichever is earlier. In an unfortunate event that one of the owner(s) contracts a terminal illness, has a total permanent disability or passes away, HPS will pay off the outstanding home loan up to the sum assured and based on the percentage share of the insured. Family members will not have to worry about not keeping up with the insured’s share of payments and risk losing the flat.
For claim benefits under terminal illness, it must be certified by an accredited doctor and that the illness will likely result in death of the insured person within 12 months.
Likewise, for claim benefits under total permanent disability, it must be certified by an accredited doctor and the disability has led to the insured being unable to take part in any employment permanently or has total permanent loss of physical function of a) both eyes, b) two limbs, or c) one eye and one limb.
As the monthly home loan instalments are paid and the outstanding mortgage gradually decreases, the sum assured over the policy period will reduce accordingly. CPF board requires 100% of the outstanding home loan amount to be insured.
It is recommended that the coverage is spread according to your share of responsibility in repaying the mortgage. For example, if you are responsible for paying 70% of the monthly housing repayments, your HPS should cover at least 70% and the co-owner should be insured for the remaining 30%.
Nevertheless, both co-owners can opt to be insured for 100% of the outstanding loan amount. This means that if anything happens to either one of the co-owners, the outstanding home loan will be fully paid for by the CPF Board.
In the event that there is a change in the share of responsibility for the monthly payment, or a lump sum of money is used for early repayment of the loan amount, you should inform the CPF Board to get the HPS premiums adjusted.
To qualify for HPS coverage, the following criterions must be satisfied:
- You are the legal owner of the flat
- You have completed the loan application with HDB or the approved mortgagee and are now legally responsible for the loan
- You have made your health declaration which is accepted for HPS coverage
- You have paid the first HPS premium
- You are between the ages of 21 and 65 (inclusive)
Furthermore, the coverage of HPS is subjected to the applicant being in good health. Owners with serious pre-existing illnesses are hence not eligible for HPS, though they can still use their CPF to service home loans. Pre-existing conditions can include cancer, kidney failure, diabetes with complications, etc.
Each individual is assessed on a case-by-case basis on their severity, prognosis, control of the medical condition and the applicant’s health risk profile. Those who are not eligible to be enrolled under HPS can opt for private insurers. Private insurers can provide more coverage in other conditions that could also affect one’s ability to continue paying off their mortgage, such as Critical Illnesses.
If home owners still face financial difficulties in servicing their HDB monthly loan instalments due to death or disability, HDB has a range of financial assistance schemes that can help further alleviate the financial burden of home loans.
Payment for HPS Premiums
The annual premiums payable for HPS depends on the following factors:
- Your home loan amount
- Your home loan tenure
- The percentage of coverage
- Loan interest type (HDB concessionary loan or market rate)
- Age and gender
The CPF website is equipped with a Home Protection Scheme Premium Calculator for owner who would like to gauge how much the premiums will be.
Under HPS, the insured will only need to pay premiums for 90% of the cover period. For example, in order to be covered for 25 years, the insured will need to pay premiums for 22 and a half years.
The premium will be deducted automatically every year from the CPF Ordinary Account. In a case where the Ordinary Account has insufficient funds, cash will need to be used to supplement the payment. Alternatively, the co-owner can authorise the deduction of premiums from their CPF accounts.
It is crucial to not let the HSP policy lapse as you will need to re-apply for cover and the eligibility will depend on your health and condition at the point of re-application.
One will not be able to make claims under HPS in the first policy year of the cover if the death or permanent incapacitation caused by self-inflicted injury or suicide, criminal offence punishable by death, or claim arising out of the insured’s own intentional criminal act.
Furthermore, the insured will also not be able to make claims under HPS if they were not in good health before the commencement of HPS cover, if information provided by the insured was false or misleading and if the claim arose from wars or participation in any riot.
Exemptions from HPS
One may apply to be exempted from HPS if they have sufficient insurance coverage that covers their outstanding housing loan up to the full term of age 65.
Some of the accepted types of insurance policies include:
- Whole Life
- Term Life
- Life Riders (must be attached to a basic policy)
- Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider
Do note that group policies, policies with loans attached, policies from insurance companies not registered in Singapore, policies in foreign currency and health/general insurance policies will not be accepted for exemption.
To apply for exemption, one must first get the HPS cover if one plans to use CPF savings to pay for the mortgage and apply for an exemption after obtaining legal ownership of the HDB flat.
For more information about HPS and its application process, please do visit the CPF website.