Insuring the roof over your head — Michael Tan
AUG 16 — A recent internal study showed that many Singapore home owners still harbour a significant misconception on the purpose of mortgage insurance.
Only 43 per cent of the respondents were able to correctly identify that mortgage insurance helps to ensure the dependants are not financially hampered if an unfortunate event occurs to the home owner, such as diagnosis of a critical/terminal illness, permanent physical disability or even death.
Whether the residential property that you are eyeing is meant for own or family stay, some factors you should consider when taking up mortgage insurance include:
• Tenure of the home loan commitment
• Sum assured on mortgage insurance
• Affordability, and
• Comprehensiveness of the mortgage insurance coverage required.
If the property is for your own stay, you can choose to stretch the home loan repayment schedule to the maximum term in order to better manage your cash flow.
As a rule of thumb, the mortgage insurance term should match the home loan repayment tenure. For instance, if your home loan repayment schedule is for 35 years, you should get mortgage insurance with a term of 35 years.
The second rule of thumb would be to ensure the sum assured or coverage amount on your mortgage insurance matches the home loan repayment schedule.
If an unfortunate event occurs, the payout from your mortgage insurance plan can then be used to fully repay your loan commitments without placing additional burden on your family. Since the outstanding home loan amount reduces over time, it only makes sense to take up mortgage reducing term assurance (MRTA) plans. This saves you from paying for extra coverage that is not necessary.
In addition to a basic MRTA plan, another option would be to go for a plan such as the Mortgage Protector Plus, which offers full refund of the premium paid if no claims were made throughout the coverage term.
Although this single form of mortgage insurance is more expensive than a basic MRTA, the advantage is that you enjoy additional “value” as you would be able to get back your initial outlay if nothing occurs, and may be an option to consider if you are not cash strapped.
At the end of the day, the house is a place that you and your loved ones call home.
Having a home loan without mortgage insurance protection is like walking a high-wire without a safety net. That’s why it is important to ensure that your home and family are protected in the event of your death. Ensure that the protection that you opt for matches your needs, so that your liabilities are not left open. — Today
* Michael Tan is the Head of Premier Wealth Advisory at OCBC Bank.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.