What to look at when buying mortgage insurance

Home owners should first decide the amount of mortgage cover and the premiums they can pay

The recent case of Madam Kok Pooi Leng, who lost her semi-detached house after her husband was killed last year, has thrown into the spotlight the importance of mortgage insurance.

Madam Kok’s house was repossessed by the bank last year because she had not been able to make loan repayments on the outstanding mortgage on the property.

Mortgage insurance takes care of this by ensuring that in the event of the death or disability of the home owner, the outstanding amount on his home loan will be settled.

This means that the home owner’s dependants ‘will not have to worry about meeting mortgage repayments’, selling the home or downgrading to keep a roof over their heads, said DBS Bank.

This form of insurance is required for owners of Housing Board flats, but not for those of private property.

However, most banks will recommend that you take out mortgage insurance when you apply for a home loan with them.

Some have tied up with insurers to offer these policies, such as DBS with Aviva.

So what should you consider when deciding which product to buy?

Some of the first things to consider would be how much of the total mortgage you want to cover as well as how much you can afford to pay in premiums, says DBS.

Most policies also allow you to choose the number of years covered, which can range from five to 40 years, as well as whether you want to pay annual premiums or a single premium.

Single premium products tend to be slightly cheaper, noted Mr Tan Chia Seng, Citibank Singapore’s business director.

As well, joint home owners can opt to take a joint-lives policy to cover both owners, which usually costs less than taking two separate single life policies.

Such a policy will cease after the first claim is paid on the party who dies first.

Another thing to look out for is the type of protection coverage offered.

Preferably, the policy should cover death, total and permanent disability, and critical illness that renders the policyholder unable to work.

DBS’ MortgageShield product also provides an ‘interim accidental death cover’ that offers up to 90 days of accidental death cover for the period between the home owner applying for the policy and when it takes effect.

However, it must be noted that some insurers provide certain benefits only up to a specified age limit such as 60 years, said NTUC Income’s head of life insurance, Mr Peh Chee Keong.

Lastly, it is essential to choose the right interest rate to apply to your mortgage insurance to ensure that it can cover any future rises in home loan rates.

DBS recommends that home owners take insurance at a slightly higher interest rate than that on their current home loan package because home loan rates can change unexpectedly.

Policy choices

DBS MortgageShield (DBS/Aviva)

Offers term coverage from five to 40 years, with annual interest rates available at 5 per cent, 7 per cent and 9 per cent.

No premiums are payable in the last two years of the policy.Includes accidental death cover for up to 90 days, covering the period required to process the insurance application after the mortgage has been approved.

PruMortgage (Prudential)

Offers term coverage from 10 to 35 years, with interest rates ranging from 3 per cent to 7 per cent.

No premiums are payable in the last three years of the policy.Available for ages 20 to 60.

Mortgage Protection Plan (NTUC Income)

Offers term coverage from 5 to 35 years. Its permanent total disability coverage has been extended to age 65.

Premiums are payable only for 75 per cent of the policy term.

MortgageProtector (HSBC)

Offers term coverage from 10 to 40 years, with interest rates ranging from 1 to 10 per cent.No premiums are payable in the last four years of the policy.

Total and permanent disability coverage goes up to age 65, while life insurance protection goes up to age 70.

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