Leaving a Legacy

Is Mortgage Insurance necessary?

You’ve bought your dream house, decorated it in style and moved in. The location is great, the view is spectacular and the family is happy.

Perhaps you took up a significant home loan. Something unfortunate occurs to the sole breadwinner and suddenly the family is left with no income, and unable to continue the home loan repayments.

WHAT CAN YOU DO?

If you own private property, consider a Mortgage Reducing Term Assurance (MRTA). It’s a form of Decreasing Term Life Insurance, which means the amount you are insured for decreases over time.

If you are no longer able to make loan payments for some reason, the plan helps you settle the unpaid portion of your housing loan with a sum of money. This means your spouse and children will not be left with a mortgage burden.

(Owners of HDB flats who have purchased their flats using their Central Provident Fund (CPF) funds can get a similar plan under the compulsory Home Protection Scheme.) The MRTA is often portable, which means you can continue with the same plan even after you sell your current property and buy another one.

An additional plus point is that MRTA premiums generally tend to be lower than typical life insurance policies, so you do not need to worry about your monthly repayments being overloaded.

Premiums are fixed throughout, regardless of your age. And, insurers offer plans where you can finish paying premiums earlier but the MRTA policy will still be in force until the home loan period ends.

SHOULD YOU DO IT?

The MRTA is a decreasing term insurance plan and has no cash value i.e no cash will be returned upon cancellation of policy.

However, if you are relatively young and healthy, you might be able to obtain a level (non-decreasing) term life insurance for the same amount as your mortgage, with premiums that are comparable or lower to an older person’s MRTA premium.

If you choose a whole term life insurance plan, it would have a cash value at the end of the term, with compounded interest over time that might give you better value for your money.

Safeguarding your belongings

Did you leave the iron on? The stove? Or maybe your neighbour did. It happens. Is your entire neighbourhood watch group, including yourself, away on holiday? Home protection insurance plans provide coverage against the loss of, or damage to the contents of your home.

Some plans also offer cash reimbursements if you have to seek shelter at a hotel, or even replace meat that has gone bad in your freezer due to power outage.

Protecting your investments

Just as you would like to protect your home, there are ways to protect that nest egg or your child’s inheritance. If you are invested in stock markets, there are ways to help you avoid big losses if the market takes a hit.

Many eggs, different baskets

Spread out your risk through diversification and portfolio allocation. For stocks, invest in companies that operate in different business sectors.

You may also consider indexes and exchange-traded funds that track the broader market, or government and corporate bonds that pays periodical interest and returns the principal investment upon maturity.

The bottomline

As with all purchases, be sure to do your homework to know the details of what you are buying into. Compare across insurance providers to ensure you get what is most suited to your needs.

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