Previously, we wrote an article on Mortgage Reducing Term Assurance (MRTA). If you have missed it, do take a read to understand MRTA and Home Protection Scheme (HPS) better.
Ever since the Global Financial Crisis (GFC), interest rates have been pushed to a low environment. With HDB housing loan interest rate at 2.6%, one may find banks offering lower interest rates than what HDB offers. With the low interest rate environment in the past years, property transactions have since risen a fair bit. You may refer to the property price index provided by URA.
Given such a trend, it is quite likely that a HUDC, EC or private home owner, may have overlooked the need for mortgage protection insurance, while HDB owners may choose to remain under the HPS scheme. Let us look at some of the products available that provide such protection for home owners using a Term Life Insurance product or a Mortgage Reducing Term Assurance. Do note that for HDB home owners, these two products are also included as part of the exemptions that one can have as an alternative to HPS.
So how to choose which is best for me?
Buying an insurance product can involve a long term commitment. It is important to understand your needs and affordability in ensuring that sufficient coverage is obtained to meet your obligations.
Regular repayments made to the loan provider will gradually reduce the outstanding loan amount. Likewise, the sum assured will also reduce over time.
Here, we provide a comparison of Term Life Insurance and MRTA as a mortgage protection tool should any unforeseen events such as Death or Disability befalls a home owner. This is to ensure that as a home owner, you or your family will continue to have shelter and be relieved of the financial burden of paying the mortgage loan should such events occur.
Reasons for MRTA or a Level Term insurance for your housing protection
Number |
MRTA |
Term Life |
Result |
1. |
MRTA is designed as a protection for your mortgage loan. |
If you do not have any basic insurance coverage, having a level term life insurance as a coverage for income replacement and outstanding mortgage loan makes sense. |
Draw Both provides mortgage loan protection |
2. |
Premiums for MRTA are usually lower as compared to other life insurance. |
Nevertheless, with increased competition amongst insurers, premiums for level term especially for large sum assured of $1Million coverage and above are very competitive. |
MRTA
MRTA Premiums are lower than Term Life |
3. |
If you do not have any Critical Illness (CI) protection, by adding a rider to extend the coverage will be more economical than buying a standalone CI plan. |
Similar to MRTA, by adding a rider to enhance the coverage will be more economical than buying a standalone CI plan. |
Draw
Both allow adding of additional rider such CI |
4. |
Cash payout will be made to the family. The sum assured for Death and TPD will be reduced accordingly to the interest rate.. |
Cash payout will be made to the family. Sum assured for Death and TPD benefit remains the same throughout the policy term even as the mortgage loans are being paid down. This means more of the payout can be used for other needs and purposes. |
Term Life
Higher payout from Term Life helps to manage other financial needs beyond mortgage loan. |
So which insurance plan makes sense?
Next we will compare the premium rates for a level Term Life insurance vs MRTA for a 33 year old, Male, Non-smoker:
- Sum Assured: SGD $1 million
- Policy Benefits: Death, Terminal Illness (TI) and Total Permanent Disability (TPD)
- Coverage Term: 30 years
- Manulife – ManuProtect Term
- NTUC Income – iTerm
- Tokio Marine – TM Term
- Manulife – ManuProtect Decreasing
- NTUC Income – Mortgage Protection Plan
- Tokio Marine – TM Mortgage Protection
*#Annual premiums in SGD
Mortgage Reducing Term Assurance with interest rate at 3% |
Mortgage Reducing Term Assurance with interest rate at 4%> |
Level Term Life Insurance |
|
Annual Premium |
$1,050 |
$1,070 |
$1,092 |
Payment Term |
28 years |
28 years |
30 years |
Total Premium |
$29,400 |
$29,960 |
$32,760 |
Coverage term |
30 years |
30 years |
30 years |
Coverage upon Death or TPD |
|||
10 years |
$786,463 |
$811,308 |
$1,000,000 |
20 years |
$472,062 |
$506,619 |
$1,000,000 |
30 years |
$49,533 |
$55,606 |
$1,000,000 |
Estimated rebate (30%) by Insurance@FSM over 6 years |
$380 |
$390 |
$520 |
#This is a simple illustration that does not take into account client risk profiles, financial objectives and other types of commitment.
*Calculations are done on the assumption that the distributor will receive commissions for only the first 6 years from policy inception. The rebate figures are meant as an estimate and are not guaranteed. If the policy lapses or terminates, outstanding rebates will not be payable. Figures are based on a 33-year-old male non-smoker client profile.
From the illustration above, one can deduce that the total premium difference paid between a level Term Life Insurance and MRTA at 3% interest rate amounts to about $3,360 over a 30-year coverage. Averaging that over the 28 years of premium payment term for MRTA, this results in a difference of $120 annually. However, the difference in the sum assured offered by a level Term Life insurance product outweighs the MRTA, especially towards the end of the policy term
A further savings is obtained with the commission rebate of 30% that Insurance@FSM offers. Hence, if affordability is not of a concern and the difference in premium seems minimal, a level Term Life insurance is the better choice as long as it covers the financial obligations that one may need. In a simpler way, since both product provides coverage against the housing loan amount, it boils down to cost and benefits being the factor for consideration.
We hope our series of articles on Mortgage Protection have been beneficial to you in understanding the different types of products that can be utilised for providing coverage on outstanding housing loan in the event of death or disability, hence ensuring you or your loved ones to continue having a home to live in.
At Insurance@FSM, we have Term Life and MRTA insurance products available from various insurers. Do browse through our product offerings here for more information.
Alternatively, you may refer to the MRTA and level Term Life products that we offer as listed below:
Term Life:
MRTA:
Protect yourself and your loved ones today and enjoy savings at Insurance@FSM
For enquiries, contact us at advisory@fundsupermart.com and our dedicated team of advisers will be happy to assist you.
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