Oct 30, 2013

    Mortgage insurance with a difference

    The Business Times

    SOME four years ago, OCBC Bank launched a unique mortgage protector which would refund its buyers all the premiums paid if they were still alive at the end of the 20-year home loan.

    To date, the Mortgage Protector Plus (a single-premium policy) and Mortgage Protector Advantage (a regular-premium version) are still the the only mortgage-insurance plans in town which do this - and the bank says the response has been great.

    The number of new customers who bought these mortgage-insurance plans from the bank went up by more than 60 per cent in the first nine months of this year, despite a slowdown in the property market, the bank said on Monday.

    These policies play right into the Singaporean psyche, which just hates giving or paying for something, for nothing in return.

    Indeed, a survey that OCBC did in 2011 among 300 private-property owners found that nearly six in 10 (59 per cent) did not buy mortgage-protection plans because they saw the premiums paid on these plans as "wasted" if no claim was made.

    OCBC said the bank's refund-of-premiums feature addressed this concern. While protecting families against the burden of servicing a big mortgage in the event that the main breadwinner dies, the policy becomes a form of "forced" savings.

    "The healthy growth was a result of more consumers wanting to hedge the risk of leaving behind unpaid mortgages, without losing all the premiums when the policy expires," the bank said.

    Mr Lim Wyson, the bank's head of global wealth management, said: "Many of our customers told us that they would not have even considered buying mortgage-insurance plans in the first place, if not for the refund-of-premiums feature.

    "I believe we've hit the nail on the head with this feature, in getting more home owners to get insurance on their mortgage. It is important to protect families from the burden of servicing big mortgage loans when the untoward happens.

    "(And) they would not feel that the premiums paid are 'wasted' if nothing happens."

    Both plans are underwritten by the Overseas Assurance Corporation, which is wholly owned by Great Eastern Holdings and a member of the OCBC Group.

    There is no free lunch, of course: The cost of these plans is more than three times that of a zero-refund plan. For example, a 40-year-old non-smoker who takes out a $1-million, 20-year home loan is looking at a premium of $5,847 a year, against $1,750 for a plan with no refund.

    The higher cost has not put off Mr Justine Tan, a 38-year-old trader who initially thought mortgage protection would be a waste of money should nothing happen. But he was later convinced that he should protect his family.

    "While the annual premium may cost more than a regular plan's, it's still attractive to me since I will be able to get back the full amount that I pay. I see it as protection for my mortgage...a form of forced savings for the future."