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What you need to know about DPS coverage

The CPF Dependants' Protection Scheme can be a great help to members, but note its finer points

The Dependants' Protection Scheme (DPS) is a life insurance term plan covering many people here. But ask anyone what it covers and it is likely the details would be hazy simply because the finer points of a policy are not front of mind until something untoward happens. Here are some things that policyholders ought to know about DPS:

WHAT IS DPS?

DPS generally covers insured members for a maximum sum assured of $46,000 up to the age of 60. It aims to provide Central Provident Fund (CPF) members and/or their families with some money to tide them over the first few years after the insured member dies, or suffers from terminal illness or total permanent disability. The coverage is worldwide.

The scheme works on an automatic opt-in basis. So unless you opt out, the annual premium is automatically deducted from your CPF account.

DPS is extended automatically to CPF members who are working Singapore citizens or permanent residents between the ages of 21 and 60 when they make their first CPF working contribution. Those who are below 21 but above the age of 16 can apply for DPS cover. The objective is to insure members as early as possible when they start working, as they are more likely to be healthy and insurable then.

Those who do not wish to have this cover have to sign an opt-out form and the premium will be refunded to their CPF accounts. DPS is administered by two insurers: Great Eastern (GE) Life and NTUC Income.

DO YOU HAVE SUFFICIENT CPF SAVINGS?

DPS premiums can be paid using CPF Ordinary Account (OA) or Special Account (SA) savings. While no out-of-pocket cash is required, it also means that the policy will lapse if we have insufficient CPF savings and fail to pay the premiums using cash.

This was what happened to Mr Henry Li, 59, who died of liver cancer in December last year. His DPS policy, which was due for renewal in May last year, had lapsed as he had insufficient CPF money to pay for it and was unaware that he needed to make a cash payment.

Mr Li and his wife were living in a three-room HDB flat and their CPF savings were being used to pay the mortgage. According to his widow, Mrs Li, her husband had no intention to let his DPS policy lapse.

As his OA savings were running low, Mr Li managed to get some monies transferred from his CPF Retirement Account (RA) to his OA in April last year. He had no money in his SA. Mr Li had believed that these monies could be used for both the mortgage and the DPS premium deductions. But he was wrong.

His widow learnt only after his death that the monies transferred from her husband's RA to OA could be used only for housing payments and not DPS premium deductions. The CPF Board said it had sent a letter to Mr Li explaining this before his death, but his wife was unaware of the letter. She recalled that her husband was disoriented and had memory lapses for several months before he died.

DPS insurer GE could have rejected the DPS claim by Mrs Li on the grounds that the policy had lapsed before her husband died. Instead, it honoured the claim on the basis that Mr Li had suffered from a terminal illness before the lapse of the policy, after assessing his health reports.

Mr Patrick Kok, GE's managing director, group operations, said: "GE took into consideration many factors, including detailed hospital medical reports of the diagnosis of the late Mr Li's terminal illness and the extenuating circumstances, chief of which were the actions taken by Mr Li to ensure that his policy did not lapse by arranging for continued payment of his premium through his CPF savings, notwithstanding that he was unaware that this is not permitted."

He said that in addition to delivering on its contractual promise, GE is also committed to "honouring the spirit of the policy and to paying every legitimate claim sensitively, compassionately and efficiently".

GE informed Mrs Li that she would be receiving the full sum assured plus bonuses, which worked out to be about $53,000, after a nominal deduction for outstanding premiums.

Note that you can continue to use your OA savings for insurance premiums under the DPS and the Home Protection Scheme, after setting aside your retirement sum at age 55. However, if you do not have enough savings in your OA, it would be advisable to ensure that you have alternative funding, such as relying on cash payments instead of your CPF savings. This is to avoid the undesirable situation where your insurance plans lapse because there are insufficient CPF savings for premium deductions.

The CPF Board advises that besides OA savings, RA savings in excess of the Basic Retirement Sum can be used for housing purposes. These savings will be transferred to the OA upon request and specifically earmarked for the members' housing needs. Members above 55 can pay their DPS premiums in cash if there are insufficient OA savings.

It advises members who have problems paying their DPS premiums to approach the Board and it will assess such requests on a case-by-case basis.

ARE DPS PREMIUMS CHEAP?

The annual premiums of DPS range from $36 to $260, depending on which age band you fall into. For those below 34, the annual premium is $36. Premiums for the age band of 35 to 39 are $48; for 40 to 44, it is $84; 45 to 49 is $144; 50 to 54 is $228; and 55 to 59 is $260.

Here's what retirement adviser Providend found out after comparing DPS premiums with those of NTUC Income's iTerm plan, which offers sums assured as low as $46,000. Most term plans' sums assured start from $100,000.

Compared with iTerm, DPS is cheaper in the early phase of life. However, from the age of 45 onwards, the premium increase is significant, meaning that purchasing a private term plan could be cheaper than DPS. This assumes that you have no pre-existing illness by then.

If DPS is kept throughout your working years from age 25 till 60, the total premiums work out to be $4,180, significantly higher than those for iTerm which would be about $1,717 for a woman and $2,268 for a man.

Providend says that DPS policyholders in good health may wish to review alternative plans as they reach 40 to take advantage of the lower premiums.

For national servicemen, a good alternative or add-on is the affordable group term insurance offered by the army.

DO YOU NEED TERM LIFE COVER BEYOND 60?

One downside to DPS is that the cover ceases at the age of 60. As term insurance is meant to cover the policyholder in his working years, the scheme should take note of the current higher retirement age by aligning it with the payout eligibility age for the national annuity scheme CPF Life, which is 65 for those born in 1954 and later.

Unlike DPS, most conventional term plans now provide cover till at least age 70 and up to age 99.

DO YOU WISH TO BE REINSTATED ON DPS?

If you have opted out of DPS, you can apply to be insured at a later stage with either Income or GE directly. You will be subject to medical underwriting then.

COULD DPS BE MORE RELEVANT?

Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so as we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954.

The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing. Nevertheless, until the scheme is enhanced, for many Singaporeans who do not have adequate life cover, DPS is still a real benefit to families who are left behind to fend for themselves when a breadwinner dies or becomes disabled.

Given that term insurance rates have fallen owing to a low mortality rate, it is time to review and make DPS more relevant. This is particularly so when we are enjoying longer lifespans and the CPF Life payout eligibility age will be 65 for CPF members born in or after 1954. The CPF Board could also review and allow CPF RA monies to be used to pay DPS premiums till age 60, thus reducing the danger of policies lapsing.

A version of this article appeared in the print edition of The Sunday Times on June 25, 2017, with the headline 'What you need to know about DPS coverage'. Print Edition | Subscribe