Besides their love for acronyms, the government also has a soft spot for schemes. And if you’re an HDB flat owner, the Home Protection Scheme (HPS) is one of the many schemes you might be forced to take part in.
In a nutshell, the HPS offers insurance protection that ensures that you and your family will not lose your HDB flat if you die and can’t repay your home loan. Let’s find out more about it.
What is this Home Protection Scheme (HPS)?
The Home Protection Scheme (HPS) is a mortgage-reducing term insurance scheme that protects HDB flat buyers/owners.
If you work as an insurance agent, you are already nodding your head in understanding. For everyone else muttering “mortgage… whut…?”, mortgage insurance offers life insurance protection for any sums still owing on your home loan.
You or your family will qualify for a claim if you (or whoever is paying for the HDB flat) die, are diagnosed with a terminal illness, or become totally and permanently disabled. The amount of the claim will be the remaining sum on your home loan.
So, if you pass away when you still owe $100,000 on your home loan, this will be paid in full by the HPS. Your family thus does not have to worry about losing the flat or having to take over loan repayments in your absence.
Insurance companies sell mortgage insurance that does the same thing, so if you’re buying an HDB flat and are already covered by HPS, you don’t need to buy a separate policy unless you want extra coverage. Compared to private mortgage insurance, HPS is quite cheap.
Who is eligible for HPS? Is it compulsory?
HPS is compulsory for any HDB owner using CPF to pay the monthly home loan instalment. (HDB flats excludes executive condominiums and privatised HUDC flats.)
If you are buying an HDB flat but not using CPF to pay the home loan, you are still eligible for the Home Protection Scheme and can opt in.
You are NOT eligible for the Home Protection Scheme if you buy private property, executive condominiums (ECs) or privatised HUDC flats, but you can buy private mortgage insurance. You can compare mortgage insurance plans easily on MoneySmart.
For those insured after 1 March 2001, you will be covered by the HPS until the age of 65 or until your housing loan is paid up, whichever is earlier.
How does HPS work with multiple owners?
If you’re buying a flat with your spouse or family member, you’re likely to be co-owners. So how does the Home Protection Scheme work then?
For those enrolled under the compulsory Home Protection Scheme, the total coverage of all the owners needs to be at least 100% of the outstanding home loan (but it can be more). So if you and your spouse pay equal amounts for your HDB flat, you can each be covered for 50% of the loan.
For example, you and your partner have an outstanding home loan of $100,000. To meet the minimum requirement, your total HPS coverage needs to add up to $100,000 — so yours can be $50,000 and hers $50,000.
But you can also opt for a different ratio, e.g. you are covered for $80,000 while she’s covered for $20,000. This is useful if you are not splitting the loan down the middle.
You can also be kiasu and insure both of you for the maximum of 100% each. So you are covered for $100,000 and she is covered for $100,000 too. That way, if one of you dies, the home loan will be fully paid for. However, the premiums will be higher.
How much are my HPS premiums?
HPS premiums are calculated based on the following factors:
- Outstanding housing loan on the flat
- Loan repayment period of the flat
- Type of loan (HDB concessionary loan or bank loan)
- Age and gender of member
In general, a higher loan amount and/or a shorter repayment period will raise your HPS premiums. The older you are, the higher your premium will be. Mens’ premiums also tend to be higher than women’s. You can use this calculator to estimate your premiums.
A bit of good news: You only need pay premiums for 90% of your cover period. So, if you are covered for 30 years, you will pay premiums for only 27 years.
Sample premium: Using the CPF HPS calculator, a 30-year-old man seeking coverage for a 25-year home loan of $300,000 will need to pay $240 a year for 22 years.
Can I use CPF to pay HPS premiums?
Yes. The annual premium will be deducted automatically from your CPF OA.
If your OA doesn’t have enough money for both the housing loan and HPS premium, the HPS premium takes priority (so as to avoid your coverage lapsing).
If your OA still doesn’t have enough to pay the HPS premium, you’ll be notified by CPF. You can either get a co-owner to pay for it using their CPF OA savings, or pay by cash/eNETs/PayNow/AXS.
Those who are financially affected by COVID-19 can request to defer their HPS premium. It’s best to not let your coverage lapse, if possible — if you want to reapply for HPS, you need to undergo medical underwriting and might not even be eligible due to your health condition.
Is it possible to opt out of the Home Protection Scheme?
For those for whom HPS is compulsory, you can apply to opt out if you have one of the following types of insurance policies:
- Whole life insurance
- Term life insurance
- Endowment plan
- Life riders (must be attached to a basic policy)
- Mortgage Reducing Term Assurance (MRTA) / Decreasing Term Rider
The policy or rider must cover you if you suffer from death, terminal illness and total and permanent disability for any unpaid sums on your home loan up to the full term of the loan or until you hit the age of 65, whichever is earlier.
To get exempted from HPS, apply online via the CPF website. Log into your CPF account, go to My Requests > Home Protection Scheme (HPS) > Apply to be Exempted from HPS.
HPS vs mortgage insurance: What’s the difference?
HPS is a form of mortgage insurance. However, it differs in some ways from private mortgage insurance, which you can buy from major insurers like the ones below:
For one thing, HPS is not portable. So, if you sell your HDB flat and buy another home, you cannot just transfer HPS to the new property. You’ll have to terminate the plan and reapply for another, which may affect your premiums.
Besides that, HPS also has some rather specific terms, such as covering you only until the age of 65. Private mortgage insurance plans, on the other hand, may have a later or no maximum age. This is an important one to note if you are an older HDB flat owner.
Another difference is that the HPS will repay the HDB or your bank directly if a successful claim is made. Mortgage insurance, on the other hand, may give the payouts directly to you or your family, depending on policy terms.
Also, private mortgage insurance might also have some riders or add-ons that you can customise to your liking, like riders that can waive your premiums or offer critical illness coverage.
That said, HPS is relatively inexpensive compared to mortgage insurance plans on the market. So, if you qualify for HPS, it’s a good idea to get it. You can always add additional coverage if you feel that you need it.
HPS vs life insurance: Which is better?
You can opt out of HPS if you have life insurance, but the two types of policies are actually quite different. Some examples of term life insurance below:
For one thing, the coverage is structured differently. HPS is pegged to your outstanding home loan, so the sum assured decreases as you make loan repayments, and it ends when you have fully paid off your home loan.
On the other hand, life insurance protection does not decrease as you pay off your home loan. That also means you could end up being under- or over-insured at some point unless you adjust your sum assured.
Both HPS and life insurance can cover your home loan, but for life insurance more work is involved on your part in calculating your protection needs and making sure you’ve factored in your home loan repayments.
There is nothing stopping you from getting both life insurance and HPS. In fact, you probably should have both if you are buying an HDB flat and have dependents.
What should I do with my HPS then?
If HPS is compulsory for you, then there’s not much you can do. But even if you’re able to opt out of the scheme, we’d recommend hanging on to your HPS anyway.
Your private insurance coverage might lapse if you fail to pay the premiums due to financial difficulties. HPS, on the other hand, is automatically paid through CPF (and CPF can be quite forgiving if you are unable to pay). So think of it as your safety net.
If you have or plan to buy life insurance, HPS can help you save money. You can opt for a lower sum assured on your life insurance policy since your mortgage repayments are already covered by HPS, so you pay lower life insurance premiums.
Do make sure to review your insurance coverage from time to time. You’ll need to adjust your HPS coverage if you have:
- Switched to a longer or shorter loan package
- Partially redeemed or paid up your home loan
- Changed your share of repaying the home loan
You can write in to CPF to adjust your HPS coverage to make sure you’re not underinsured or overpaying for your coverage.
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