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Why I reinstated my Dependants' Protection Scheme at age 30

29 Aug 2018 
SOURCE: Heartland Boy

Impending parenthood has forced Heartland Boy to re-evaluate his financial planning more holistically. As he reviewed his insurance coverage, he realised that the Dependants’ Protection Scheme (‘DPS’) has inexplicably slipped from his grasp. The explanation for this is that Heartland Boy automatically enrolled into the DPS at age 16 when he was a part-time waiter at a restaurant during the school holidays. That also marked the first time he made his first working CPF contribution. Subsequently, due to insufficient funds in his Central Provident Fund (‘CPF’), the DPS eventually lapsed after the 60-day g​race period. With a dependent to welcome in the family soon, the rules of the game have definitely changed. Therefore, he decided to pluck a low-hanging fruit by reinstating his Dependants’ Protection Scheme at age 30.


WHAT IS THE DEPENDANTS’ PROTECTION SCHEME
The Dependants’ Protection Scheme is a type of term insurance that covers insured members for a maximum sum assured of $46,000 up to 60 years old. (Source: C​PF) This policy pays the insured or the insured’s family when any of the following events happens to the insured:

  • Insured suffers from terminal illness or
  • Insured suffers from Total Permanent Disability or
  • Death of the insured

Here are some features of the Dependants’ Protection Scheme:
  • It is an optional insurance scheme that is automatically extended to all eligible CPF members (Singaporeans and Singapore Permanent Residents) Therefore, to be excluded from the DPS, CPF members have to complete an opt-out form.
  • Currently, DPS is administered by only 2 private insurance providers- NTUC Income and Great Eastern Life. If you are a young adult who just received your first pay cheque, you will also receive a welcome letter on the DPS from either of these insurance providers. Note that allocation to either insurance provider is totally random.
  • Premiums can be paid from your CPF. If there are insufficient funds in your CPF OA, the premium will be paid from your CPF SA instead. If both accounts are empty, the premiums can also be paid using cash. Failing which, the policy will lapse as is the case for Heartland Boy.

Heartland-boy-Dependants'-Protection-Scheme
 
Look at how miserable Heartland Boy’s CPF accounts looked like 10 years ago

  • The DPS is administered by the Singapore Deposit Insurance Corporation, which means that the guaranteed benefits will be paid out even in the event of the failure of the insurance provider.
  • CPF Nomination does not cover DPS claims proceeds
  • As a term insurance, the insured receives nothing at the end of the policy (i.e. upon reaching 60 years old when it terminates automatically)
 
DEPENDANTS’ PROTECTION SCHEME PREMIUM TABLE
DPS-annual-premium-payment-table 

DPS Premium Table

The following table illustrates the premiums payable. The only factor that determines the amount of premium payable is age. Note that gender does not affect the amount of premium payable.

The DPS is often marketed as a low-cost and affordable term insurance policy. However, there is more than it meets the eye. An insightful analysis by Lorna Tan from the Straits Times revealed that DPS is indeed cheaper for those in the early phases of their lives.
compare-term-insurance-Dependants' Protection Scheme Compare premium​s of private term insurance policies against Dependants’ Protection Scheme

DPS premiums become more expensive for insured member age 45 and beyond. In other words, it would have been cheaper for this group of people to purchase other types of term insurance from the private market to get equivalent protection. However, the caveat is that “switchers” must first ensure that they are in the pink of health and have no records of any pre-existing illness. Otherwise, they risk paying even higher premiums or worse, becoming uninsurable.


WHY HEARTLAND BOY LIKES ABOUT DEPENDANTS’ PROTECTION SCHEME
Given its relatively cheaper premiums before age 45, Heartland Boy views the DPS as a low-hanging fruit that can provide financial protection for his family should any of those aforementioned events occur. Moreover, besides his wife and child, Heartland Boy also considers his parents as dependents as well. No matter how little the coverage is, the DPS payout will still be a form of financial relief during difficult situations such as death of a breadwinner

​Furthermore, DPS does not discriminate on gender. Males have shorter life-spans and thus are at greater risk of dying earlier. Yet, the premiums payable for DPS is the same regardless of gender. Therefore, fair or otherwise, males incur some “premium savings” by getting onto the DPS bandwagon.
 
Heartland Boy also likes the fact that no out-of-pocket cash expenses are necessary for the DPS. Apart from the Home Protection Scheme, DPS is probably the only insurance plan in Singapore that allows CPF OA monies to pay for insurance premiums. An excellent way for those cannot wait till 55 to withdraw the cash inside their CPF accounts


On hindsight, allowing the DPS to lapse during his youth was probably a mistake. Thankfully, Heartland Boy did not get punished for this as no pre-existing illnesses had set in during that period. As the premiums of DPS increases as you age, this implies that ther​e is no financial penalty (i.e. a higher annual premium payable) for starting at a later age. Therefore, it does not matter when you start as you will still be paying the same annual premium. Well, just because there is no financial penalty to applying for DPS at a later stage in your life, you shouldn’t wait too long either as you never know when any of the conditions will strike you!

 ​

​The article was first published on Heartland Boy.

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