Purchasing a new property is a milestone that’s worth celebrating, but it can also be a huge financial commitment. For big-ticket purchases like these, it’s important to have the right protection to remove the stress arising from unexpected events. More importantly, it ensures that you and your loved ones will always have shelter, no matter what curveballs life throws at you.

For instance, in this climate of volatile interest rates, what types of insurance in Singapore should you consider especially if you have a floating interest rate loan? What are the differences between the Home Protection Scheme (HPS), Mortgage Reducing Term Assurance (MRTA) and level term insurance, and which is a better fit for your needs and budget? 

What is mortgage insurance and why is it important?  

Mortgage insurance is a type of insurance that covers your outstanding housing loan amount and protects you and your family financially in the event of death, terminal illness or total and permanent disability.

Here’s why it’s important. Let’s say you’re unable to work due to critical illness, or in the unfortunate event that you are no longer around, your loan still has to be serviced. When you can no longer take on the mantle, this responsibility gets passed on to your family.

With soaring interest rates and property prices these days, your outstanding mortgage will likely become a huge financial burden. If your family is unable to service the loan, the home might be repossessed by the bank. As you can imagine, this can be an extremely stressful situation for your loved ones.

For this reason, it’s worth considering mortgage insurance as long as you have taken a loan to finance your home. This ensures that your loved ones will always have a roof over their heads.

What are the types of mortgage insurance?

There are primarily three types of mortgage insurance available for homeowners in Singapore: Home Protection Scheme (HPS), Mortgage Reducing Term Assurance (MRTA) or level term insurance. However, HPS is available only for HDB flat owners while private homeowners can opt for either MRTA or term insurance for their mortgage insurance.

Home Protection Scheme (HPS)

HPS is a mortgage-reducing insurance that provides coverage for your home loan, and covers your mortgage in the event of death, terminal illness or total permanent disability. Available only for HDB flat owners, HPS will cover you till you are 65, or until your housing loan has been fully paid up, whichever comes earlier.

It is also compulsory if you are using your CPF funds to pay for your monthly housing loan instalments. However, you can choose to opt out of HPS as long as you have an existing insurance policy, such as term life insurance or MRTA, which adequately covers your outstanding mortgage amount.

Do note that HPS is tagged to your HDB property and not you, the policyowner. This means that you will have to apply for a new HPS when purchasing a new flat in the future.

Mortgage Reducing Term Assurance (MRTA)

As its name suggests, Mortgage Reducing Term Assurance (MRTA) is a mortgage-reducing insurance with coverage that corresponds to your outstanding mortgage amount. What this means is that the sum assured decreases over time in tandem with your outstanding mortgage amount, as you repay your loan.

Unlike HPS, an MRTA policy is tagged to you, the policyowner, and not the property. The upside of this is being able to bring over your existing coverage from your MRTA policy to your next property. This reduces the need to sign up for a new plan, which may come with higher premiums the older you get, especially if you have developed new health conditions. 

Term insurance

While typically used more for life insurance needs, term insurance can also be used to cover your housing loan. Unlike HPS and MRTA, coverage isn’t specific to your housing loan nor does it reduce along with your outstanding mortgage amount. 

Instead, level term insurance offers consistent coverage over a fixed duration of your choice, and is versatile in the sense that you can choose how long your coverage should be. You can even choose to end it once your loans have been paid off, or extend it so you can turn it into a legacy for the future generation after your mortgage has been paid.

Because coverage is tied to you and not your mortgage, you can also choose to start your coverage even before you purchase your property! You don’t have to terminate your term plan even after your mortgage has been fully paid up, and can continue using it as mortgage insurance for your subsequent properties.

This makes financial sense if the coverage you require is similar, and helps you save money as new insurance plans would likely come with higher premiums as you become older.

HPS, MRTA and term insurance: What should homeowners get?

Now that you’re well acquainted with the three types of mortgage insurance in Singapore, you might wonder which is a better choice for you.

For HDB owners, HPS might be the clear choice – not to mention compulsory – if you are paying for your housing loan with your CPF savings. But did you know that you can opt out of HPS as long as you have adequate insurance coverage in the form of whole life insurance, term insurance, endowments, MRTA and even life riders?

If you prefer more coverage than the standard death, terminal illness or total and permanent disability, it’s worth considering getting term life insurance instead. Most plans in the market allow you to extend your coverage with riders, which serve as extra financial protection.

For example, additional coverage from a Critical Illness (CI) rider means that you’ll get the financial help you need upon diagnosis of an illness like cancer. This makes for one less thing to worry about and allows you to focus on your health and recovery. 

MRTA vs term insurance: which should I get?

Between MRTA and term insurance, which is a better option? They both have their benefits, but depending on the type of loan you’re holding onto, one may work better than the other.

Take for instance, a homeowner with a floating interest rate loan. With rising interest rates, homeowners may find themselves paying more with each monthly mortgage payment. This occurs when a larger proportion of the monthly mortgage payment goes towards paying off interest, leaving less money to pay down the principal amount owed.

In such cases, an MRTA might lead to a protection gap. That's because while your coverage decreases at a pre-determined interest rate, the reality is that your monthly mortgage payments could be at higher interest rates now.

Here's a snapshot of how the two compare.

Still having trouble deciding between the two? Here are some considerations you’ll have to take note of.

1. Affordability

MRTA is often lauded as the more affordable option, but it’s prudent to make comparisons. What most people don’t realise is that MRTA premiums do not reduce as your coverage does. Meanwhile, the coverage and premium from term insurance remains level throughout the policy duration.

To get the best deal, work out the total value you are getting rather than comparing it based on the initial cost alone – how much would you have to fork out over the entire premium term and how much coverage would you get in return?

2. Transferability of coverage

Both MRTA and term insurance are tied to the policyowner, which means that you can use the same plan for subsequent properties. The difference however, is that the coverage with an MRTA reduces along with your outstanding mortgage amount. This means that if you are purchasing a new property towards the tail end of your MRTA, the remaining coverage may be insufficient.

If you have to purchase a new policy to make up for the gap, you will be subjected to another round of medical underwriting, which may result in higher premiums especially if there are changes to your health situation.

On the other hand, the coverage from term insurance remains level and depending on your sum assured, this could be sufficient for future property purchases and you may not have to increase your coverage. 

3. Flexibility of payouts

One of the biggest differences between MRTA and term insurance is what you can use the payouts for. With MRTA, the payouts are usually only enough to offset your remaining mortgage payments.

However, with term insurance, you would likely have excess coverage and the payouts can be used for other needs beyond servicing your home loan. When it comes to supporting your loved ones financially, it’s always better to have more than less. 

Protect your loved ones with Etiqa Essential term life cover  

A home is more than just bricks, but also the shelter for you and your loved ones. Term insurance can help you protect this space and ensure that your family is cared for financially in the event that you’re no longer there with them.

Term life insurance plans like Etiqa Essential term life cover is flexible too. Need short-term coverage just till you’ve reached your Minimum Occupation Period (MOP)? You can choose a coverage duration of just 5 years. Want a longer-term coverage? Choose your policy duration from 10 years to age 86 (at every 1-year interval), or up till age 100. The longer your duration, the more likely you can leave a legacy for your loved ones.

You can also convert your Essential term life cover policy into an endowment or whole life policy, or increase your coverage at specific milestones such as marriage or having a child. This saves you from the hassle of purchasing another policy, especially when you can do all these without having to show proof of good health!

Etiqa Essential term life cover is also very affordable. It costs S$527.70 per year for a 35-year-old male, who chooses a S$1 million level coverage for 20 years. It covers death, terminal illness and total and permanent disabiity. Premium shown includes 9% perpetual discount.

Furthermore, you can get rewarded when you protect yourself and your loved ones today.

• Enjoy up to 53% perpetual discount¹ when you safeguard your family with Etiqa Essential term life cover 
• Additional reward of up to S$2,500 of cashback² for eligible plans

Here’s one extra perk for Singtel customers: Simply spend 30 minutes to learn about the various options you have to protect your mortgage liability from an Etiqa Assurance Manager and you’ll get S$20 cash³! Just leave your contact details for your no-obligations discussion today.

T&Cs apply. Promotion ends 31 August 2024.