Is Dependants’ Protection Scheme (DPS) enough?
By Lorna Tan
Here are things you should know about DPS and how to use it to complement your financial planning:
DPS premiums rise significantly beyond age 40 and cover ends at age 60
DPS has less flexibility and does not offer limited premium
Consider other term plans, which may offer lower premiums
Consider the opportunity cost of using CPF savings for DPS premiums
Work out your term coverage, and consider boosting your cover with other plans or terminating your DPS and replacing it with another term plan.
Most of us are insured under the Dependants’ Protection Scheme (DPS) which is an opt-out term insurance scheme administered by two insurers Great Eastern and NTUC Income. Central Provident Fund (CPF) members are automatically included under DPS if they are a Singapore Citizen or Permanent Resident, between ages 21 and 60, and have made their first CPF working contribution.
A comparison with other term plans indicates that while the DPS is simple to understand, the coverage is basic and usually insu¬fficient especially if you have dependants or are servicing a home loan. After all, the aim of this scheme is to provide insured members and their families with some money to tide over the initial period should the insured members pass away or suffer from Terminal Illness or Total Permanent Disability.
The maximum sum assured under the scheme is $46,000 and the cover ends when the member reaches age 60 or when there is an eligible claim, whichever is earlier. DPS also offers the convenience of having its annual premiums deducted from our CPF Ordinary or Special Accounts, so it does not require out of pocket cash.
Still, the DPS policy may lapse due to non-payment of premiums which has happened to some CPF members when their CPF savings run dry and they forget to use cash to fund the premiums.
1. DPS premiums rise significantly beyond age 40
One advantage of DPS is the financial protection provided at affordable premiums. However, most people do not realise that the DPS premiums increase significantly when the insured member reaches 40. For instance, the annual premium stands at $36 for those below 35 and it goes up to $48 at the next age band of 35 to 39. The premiums rise to $84 from ages 40 to 44, and to $144 from ages 45 to 49. When the member reaches 50 to 54 the premium stands at $228, and it jumps to $260 at the age band 55 to 59.
Dependants' Protection Scheme
Source: CPF Board
2. Other term plans may offer lower premiums
Because of the premium spike after age 40, other term plans in the market may be more attractive. For the sum assured of $46,000, the total premiums payable under DPS amount to $4,180. On the other hand, the annual premium for a 25-year-old male under Manulife’s ManuProtect Term plan amounts to $208.50 or a total of $7,297.50 for 35 years till he reaches age 60 for a higher sum assured of $150,000. And for a sum assured of $1 million, the annual premium would be $817 till age 65.
3. DPS cover ends at age 60
The statutory retirement age in Singapore currently stands at 62 and is set to rise to 65 in year 2030. As the DPS only cover insured members up to age 60, they need to consider that the DPS is unable to cover them while they are still working beyond 60.
Most term plans offered by private insurers cover the insured up to age 70 and there are a few plans that extend the cover till age 99. This may be an important factor for those who are planning to continue working beyond the statutory retirement age or require the cover beyond age 60.
4. DPS does not offer limited premium payments
DPS requires the premiums to be paid annually whereas most term plans in the market allow more flexibility in that you can choose to pay your premiums over a shorter specified period.
5. DPS has less flexibility
There are some benefits offered by other term insurance plans that are not found in the DPS. They include the guaranteed conversion to a whole life or endowment plan, guaranteed renewal privilege and the option to include riders that cover critical illness or accidental death.
For example, ManuProtect Term may be converted to any available regular premium life insurance plan (whole life, endowment or investment-linked) offered by Manulife without providing evidence of health while the policy is in-force and before the insured turns 65. After the conversion, there will be cash value for the policy unlike traditional term plans.
There are also a few term plans such as ManuProtect MoneyBack that offers full refund of premiums upon policy maturity assuming no claims were made.
6. Opportunity cost
DPS premiums are usually paid from our CPF savings unless you opt to change the premium payment mode. As our CPF Ordinary Account attracts up to 3.5% pa and the CPF Special Account yields up to 5% pa, there is an opportunity cost in using them to pay for DPS premiums.
1. Work out your term coverage
Generally, term insurance is usually less expensive when compared to whole life insurance as there is no cash value when the plan matures. Term insurance is a useful plan to replace loss of income for the family and dependants when the main breadwinner is no longer around or unable to work. Do ensure that both the policy sum assured and the policy term are su¬fficient to cover the amount and the period that the income is required by dependants or for a loan’s outstanding period.
Take into consideration when your child will complete university, or when the housing loan is fully redeemed, and/or when you expect to retire. You can also opt to stagger your term policies which can come with varying sums assured.
2. Stay with DPS and consider other term plans
For CPF members who wish to maintain their DPS cover, it is prudent to look for other term insurance plans to boost their cover in terms of the sum assured and for a longer duration, depending on their financial situation.
For example, if you are servicing a mortgage, do ensure that you have suffi¬cient insurance cover against death and terminal illness to cover the loan amount. In addition, there are also benefits in most term plans that are not available under DPS.
3. Terminate DPS and buy a term plan
Some CPF members may prefer to terminate their DPS early and buy term plans from private insurers which cater optimally to their needs. If you do so, do ensure that you do not miss out on your premium payments. To avoid the risk of lapsing your plan unknowingly, consider arranging for such deductions automatically via Giro or a credit card. In the case of DPS, it is highly unlikely for CPF members to miss out on premium payments as they come from their CPF savings.
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