You may have heard of the Dependants’ Protection Scheme (DPS), which is probably one of the first insurance plans that you have!
You will be enrolled into this scheme once you make your first CPF working contribution (between 21 and 60 y/o). However, there is an option for you to opt out from it!
As such, should you consider opting out of this plan?
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Should I opt out of DPS?
You may consider opting out of the DPS when you reach 50 years old. This is because the insurance premiums that you pay may no longer be worth the coverage that you are receiving.
However, I still believe that it is a good policy to have when you are young. The premiums are really cheap when you are much younger.
As such, the DPS will give you a basic coverage, especially when you’re just starting work!
Here is a further explanation of this issue:
What is DPS?
Here’s a very quick overview of the Dependant’s Protection Scheme. It is a term-life insurance scheme that provides a payout in the event of:
- Terminal illness
- Total permanent disability (TPD)
You will be automatically enrolled into this scheme when you meet the following criteria:
- You are between the age of 21-60 years old
- You make your first CPF working contribution
If you’ve done any part-time work from 21 years old, you would have been enrolled into this scheme!
From 1 April 2021, Great Eastern will be the sole distributor of this policy.
To decide whether you want to opt out of the DPS or not, you may want to consider the pros and cons of the DPS first:
What are the pros of DPS?
Here are some of the pros of this scheme:
#1 Low premiums below 50 y/o
From 1st April 2021, here are the premiums that you’ll need to pay for the DPS:
|Age (Last Birthday)||Yearly Premium for $70,000|
sum assured (From 1 April 2021)
|34 years and below||$18|
|35 – 39 years||$30|
|40 – 44 years||$50|
|45 – 49 years||$93|
|50 – 54 years||$188|
|55 – 59 years||$298|
|60 – 64 years||$298 (for sum |
assured of $55,000)
There are some changes made to this policy:
- The premiums have decreased quite significantly (it used to start from $36)
- The coverage has increased from $46k to $70k
- You are now covered between 60-64 years (but for a lower sum assured)
The premiums shown on the table are yearly premiums. If you are 34 years and below, you are essentially paying $1.50 a month for $70k coverage!
The premiums are extremely affordable when you are at a young age. This is great especially when you’re just starting work.
At that point in time, you may not be able to afford the insurance premiums. However, you are given a very basic coverage with the DPS.
However, the premiums may get pretty costly once you grow older.
#2 Payout helps to cover some costs
You will receive the $70k payout when you meet any of the 3 criteria:
- Terminal illness
- Total permanent disability (TPD)
What’s more, this is a ‘sum assured‘ type of policy. This means that you are able to make multiple claims from the different insurance policies. This will only possible if you meet the conditions for the payouts!
The payout will be distributed to these different people, depending on your condition:
|Condition||How payout is distributed|
|Death||Beneficiaries based on DPS nomination or will OR |
Proper claimants (e.g. spouse, parent, child or sibling)
|Terminal illness or TPD||Direct to insured member OR |
done via Lasting Power of Attorney
(if member lacks mental capacity)
Your beneficiaries will receive this payout, which could be really helpful. The $70k that they receive could be used to:
- Settle debts that you still have
- Provide some temporary income for the family
This amount could help to relieve some burden on your family’s finances!
What are the cons of DPS?
However, there are quite a few cons of the DPS as well:
#1 Coverage gets expensive once you’re above 50 y/o
The yearly premiums that you pay for the DPS are really affordable when you’re young. However as you get older, the premiums will slowly start to increase.
When you reach 50 years old, the premiums will be increased more than twice from $93 to $188!
There will be another huge jump when you reach 55 years old, where it increases to $298 from $188.
For the amount of coverage that you’re paying for ($70k or $55k), it may not be worth that amount of premiums.
#2 Term life policies may be cheaper for greater coverage
There are some term life plans that may have a lower overall cost compared to the DPS.
This is because term life plans have a fixed premium throughout your entire coverage period.
The only time when your premiums may change is when the period is renewed, converted or reinstated.
In contrast, the DPS has low premiums at the start. However, the premiums will increase significantly as you grow older!
When you do the calculations, you may realise that you will actually pay more for the DPS compared to your term-life plan.
One thing you may want to note is that most term life plans usually start their coverage from $100k. Meanwhile, the DPS only has a fixed coverage of $70k.
#3 The coverage might not be enough
If you were to solely rely on the coverage given by the DPS, it may not be enough to cover your loved ones.
The general recommendation for the amount of life insurance coverage you should have is 10-15 times your annual income.
With the DPS’ payout of $70k, this would mean that the annual income you can provide will only be $7k!
As such, the DPS alone will be unable to cover your loved ones. This is especially so if you have many dependants such as your:
The DPS is only a supplementary scheme. In the end, you will still need to get your own policy if you want to be adequately covered.
#4 You are using your CPF OA / SA funds
The premiums from your DPS are deducted from your CPF’s OA. If you do not have sufficient funds in your OA, the funds will then be deducted from your SA.
You can only use cash if you do not have sufficient funds in both your OA and SA.
The money in your CPF OA (2.5%) or SA (4%) can earn a rather significant interest rate.
- Robo-advisors like Endowus
- Unit trusts
- SGX-listed ETFs
- Gold and gold ETFs
- Selected shares on the SGX
As such, you will incur an opportunity cost when your CPF OA monies are deducted for your DPS premiums.
It may not seem like a lot at the start. However, it can really add up once the premiums start increasing!
If you prefer to grow your CPF OA monies, you may consider opting out of the DPS when you’re older.
#5 There is no flexibility in the DPS
The DPS was meant to be a very basic life insurance policy that gives you a basic coverage.
As such, it can be rather inflexible:
1. You cannot increase your coverage
There is no way for you to increase the coverage you receive from the DPS. You can only be assured of $70k (or $55k if you’re 60-64 years old).
2. You cannot add other types of policies
The DPS is provides very basic coverage for death, terminal illness and TPD. Moreover, it does not have an option for you to add-on other policies, such as:
- Critical illness
- Personal accident
- Disability income
If you wish to have coverage for these situations, you will need to get your own policy!
Alternatively, you can consider SNACK by Income which allows you to be insured from just $0.30.
#6 You may not be covered if you have pre-existing conditions
If you have pre-existing conditions, you will need to declare them to your insurer.
One of the criteria for you to be under the DPS is that you need to be in good health. If you have pre-existing conditions, you will need to inform Great Eastern.
Great Eastern will assess to see if you are still eligible for the coverage under DPS.
If you fail to declare any of these conditions, you may risk losing your payout!
It does not matter whether you’ve been paying your premiums or not. You may not be eligible for your payout if you fail to declare any conditions that you have.
Is DPS worth the money?
The DPS is a term life insurance plan that has very affordable premiums when you are below 50 years old. The premiums may no longer be worth the money once you have to pay the higher premiums.
Here are the pros and cons of this scheme:
|Cheap premiums before 50 y/o||Coverage gets expensive after 50 y/o|
|Payout helps to cover some costs||Term life plans may be |
cheaper for more coverage
|Coverage might be insufficient|
|You are using your OA funds which will |
incur an opportunity cost
|DPS lacks flexibility|
|You may not be covered if you |
have pre-existing conditions
There seems to be more cons for this plan! However I still think it is a very solid plan to have especially if you are just starting work.
You may want to reconsider if the coverage is worth the premiums, especially when you reach 50 years old!
Moreover, the DPS should only be a complement to your life insurance policies. It should not be the only life policy that you have.
Ultimately, the DPS is something that’s good to have. You should still consider getting an individual life plan to be able to provide enough coverage for your loved ones.
The DPS is a great policy to have when you’re young. However, the coverage is rather low, and it may not be worth the increasing premiums once you get older.
When you reach 50 years old, you may not have as many dependents anymore. At that age, I believe that you can consider opting out of the DPS as the premiums may no longer be worth it.