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Beware Of Mortgage Reducing Term Insurance From Private Insurers

When we buy an insurance policy, we hope that we can activate the policy and make claims when situation arises. However, there are times when we realise that actually the insurance we buy cannot be claimed as fast as we hope for or could not be claimed totally at all because of some terms and conditions which were not made known to us when we had bought the policy.

It has been brought to my attention that the reducing term insurance from AIA is not easily claimable in the event of total permanent disability (TPD) or even terminal illness. I’m not sure if this is the case for other private insurers but in this post, I will focus on the reducing term insurance from AIA and its limitations. This is shared based on my own experience claiming for the benefits of this policy and the policy contract which I have managed to obtained. 
If you’re using CPF to pay for your HDB flat currently, it is compulsory to be insured under the home protection scheme (HPS). You can opt out of the HPS if you have other term insurance from private insurers to cover your mortgage in the event if something happens. The HPS is a mortgage reducing term insurance to cover your outstanding mortgage on your HDB flat in the event of death, TPD or terminal illness. 
This mortgage insurance takes 2 years to payout for TPD
Some people would buy a private term insurance and opt out of the HPS as premiums are normally cheaper for private insurers. However, it is important to note the fine prints as it can be difficult to claim. I will take the AIA reducing term insurance as an example and have reproduced the policy summary of the product benefits below:

AIA reducing term insurance contract in 2017
The first image is the old contract from AIA for its decreasing term insurance which was bought back in 2003. The second image shows the new contract which is obtained in 2017. If you notice, the contract terms are the same. The red box in the image above shows the total and permanent disability benefit. If you notice, 10% will be pay out on the first policy anniversary and the policy can only pay out the full insured amount at the second policy anniversary as indicated by the green line. This means that if you are claiming for this policy due to TPD, you have to wait as long as 2 years before you can get the payout. 
The problem is if you have an outstanding mortgage which cost thousands of dollars a month and you had some illness or accident that caused disability, most likely you will not be able to work and lose your income. Your family remembered you had this mortgage reducing term insurance but only to find out that they have to struggle to continue paying for the outstanding mortgage for another 2 years before they can claim from this policy. This is going to cause a lot of problems later. 


Is HPS a better choice if you own a HDB?

For the HPS, which is a mortgage reducing term insurance administered under CPF board, it might be a better choice for HDB flat owners. If you own a private property, you’ll have to get a term insurance from a private insurer so make sure you check the terms and fine prints before you purchase one. The term insurance I bought from Aviva doesn’t need to wait for the second policy anniversary to payout for TPD. It just need a standard 6 months continuous TPD to claim for the benefit and the assured sum will be paid out in one lump sum. 
Back to those who own a HDB, the HPS protects us and our families against losing our HDB flat in the event of death, terminal illness or total permanent disability. The HPS does not payout in cash like how private term insurance does. The HPS will offset whatever outstanding mortgage loans instead. The claim criteria has also widened where CPF members with terminal illness and total permanent disability but are still able to work will qualify for claims under the Home Protection Scheme (HPS) and Dependants’ Protection Scheme (DPS), after Parliament passed changes to the definition of “incapacity” under the CPF Act on 29 February 2016. This was also reiterated by Mr Lim Swee Say, Minister of Manpower, on 8 May 2017 in a written reply to a question in parliament
No matter what, having a mortgage term insurance which can only payout in full in 2 years is really a long time. Most TPD benefits just require 6 months of continuous permanent disability to claim the benefit. I am disappointed that the AIA reducing term insurance can only payout fully on the second policy anniversary. If you’re considering to get a mortgage insurance for your property, do take note of the contract policy. If you already have a mortgage insurance, you might want to take a look at the contract terms too.

*Disclaimer: I am not recommending or advising on any insurance from any companies. This post is only a sharing of my personal experience and the facts which I manage to find
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