Enhanced Deposit Insurance Scheme and Policy Owners Protection Scheme from 1 April

By The Boy Who Procrastinates - April 01, 2019

This quote came from Senator Bernie Sanders when he introduced a bill to break up America's largest financial institutions in 2018. The rationale is that if a financial institution is too big to fail, it is too risky to allow it to exist as its failure would cause catastrophic risk to the economy. 

In order to ensure the stability of the banking system in Singapore, the Singapore Deposit Insurance Corporation (SDIC) was incorporated in 2006 to administer the Deposit Insurance Scheme and Policy Owners' Protection Scheme, as well as to manage the underlying funds.

Starting from today (1 April), depositors and insurance policy owners will be able to enjoy enhanced protection in the event that their financial institution fails. This article will provide an overview of the 2 Schemes as well as address the recent revision made. 

Deposit Insurance Scheme (DI Scheme)

First launched in April 2006, the DI scheme is designed to safeguard the core savings of small depositors, net of liabilities, in the event that their bank or finance company fails.

Unless exempted by MAS, all banks and finance companies in Singapore are members of the DI scheme. These members pay annual premium contributions to a Deposit Insurance Fund (DI Fund). 

In the unfortunate event that a financial institution fails, the scheme compensates the affected depositors through the DI Fund. 

DI Scheme Coverage Limit

When the DI Scheme was first launched in 2006, depositors of a failed financial institution were insured up to $20,000 of their Singapore dollar deposits only. 

This limit was subsequently raised to $50,000 in May 2011. However, the percentage of fully-covered insured depositors has eventually reduced to 87% over time due to rising incomes and greater savings. 

In order to restore this ratio to above 90%, the DI coverage limit has increased by 50%, to $75,000 from 1 April. 

(Click to enlarge)

Scope of DI Scheme Coverage

In 2011, the protection offered by DI Scheme has broadened to cover not just individual depositors but all non-bank depositors such as sole proprietorships, partnerships, companies, as well as unincorporated entities like associations and societies. The scope of the DI coverage includes Singapore dollar deposits/monies held in the following: 

  • Savings, fixed deposit and current accounts
  • CPF Investment Scheme (CPFIS) accounts
  • CPF Retirement Sum Scheme (CPFRS) accounts
  • Supplementary Retirement Scheme (SRS) accounts
  • Wadiah accounts (with Islamic financial institutions)
  • Murabaha accounts (with Islamic financial institutions)

Financial products that are excluded and not insured by SDIC are as follows:

  • Foreign currency deposits
  • Structured deposits
  • Investment products such as unit trusts, shares and other securities
The bank deposits in Singapore are insured up to a maximum of $75,000 for every depositor per financial institution. This is regardless of the number of savings accounts that one has with the bank. However, there are a few scenarios in which the total sum insured may differ. 

Scenario 1: Savings, Current and SRS Accounts

Deposits held in a savings account, fixed deposit account, current account, Wadiah account, Murabaha account and SRS account are aggregated and insured for up to $75,000. 

In the example above, Person A has a total account balance of $115,000 across all 3 accounts in Bank X, but the total sum insured is only $75,000. 

Scenario 2: Savings and CPFIS Accounts

Deposits placed under CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured for up to $75,000. 

That is to say that Person A will be able to enjoy a total insurance sum of $150,000 across his savings account and CPFIS account in Bank X. 

Scenario 3: Joint Account

For deposit in joint account, each joint account holder is assumed to have an equal share in the account, unless stated otherwise. Each joint account holder's share of the joint account is combined with other insured deposits held in his own name. 

Assuming that Person A has $50,000 in his savings account and $100,000 in a joint account with his spouse in Bank X. His share of the joint account is calculated to be $50,000 ($100,000 / 2). This amount is combined with $50,000 in his savings account to form the total balance of $100,000 but only $75,000 is insured.  

Scenario 4: Sole Proprietorship Account

For sole proprietor, the deposits in his personal savings account will be combined with the firm's account to form the maximum sum insured of $75,000.

Scenario 5: Trust Accounts

Trust accounts are insured on a per account basis without aggregation. Suppose that Person A has set up a savings account for his son with $100,000 with Bank X and the same for his daughter. Personally, he has a savings account of $100,000 with Bank X. In the event that Bank X has failed, the total sum insured will be $225,000. 

Policy Owners' Protection Scheme (PPF Scheme)

Similar to the DI Scheme, the PPF Scheme protects policy owners in the event that a life or general insurer fails. 

All insurers registered by MAS to carry on direct life business or direct general business are members of the PPF Scheme. 

They are required to pay annual levies to the PPF Life Fund and PPF General Fund which will be used for compensation to policy owners in the unfortunate event of a failure of a PPF Scheme member. 

Scope of PPF Scheme Life Coverage 

The PPF Scheme protect policy owners for all life insurance policies and provides 100% protection for the guaranteed benefits of these policies, subject to the applicable caps. Some of the main types of policies covered are as follows:

  • Individual Life and Voluntary Group Life policies: Cap of $500,000 for the aggregated guaranteed sum assured and $100,000 for aggregated guaranteed surrender value per life assured per insurer
  • Individual and Voluntary Group Annuities: Cap of $100,000 for the aggregated commuted value of guaranteed benefits per life assured per insurer
It is imperative to note that life insurance policies issued by overseas branches of a registered life insurer incorporated in Singapore are not covered by PPF Scheme. 

Scope of PPF Scheme General Coverage 

The PPF Scheme protects all compulsory insurance policies under the Motor Vehicles Act and Work Injury Compensation Act. The additional types of specific lines covered are as follows:

  • Personal motor insurance policies
  • Personal travel insurance policies
  • Personal property insurance policies
  • Foreign domestic maid insurance policies
  • Individual and group short-term accident and health insurance policies
From 1 April, motor and property insurance policies will be covered even if the car or property is used for commercial purposes. This revision comes at the expansion of the gig economy when more people are using their own cars or homes to generate income.

Additionally, there will be caps for own property damage motor claims of $50,000 under personal motor insurance policies and property damage claims of $300,000 under personal property insurance, on a per policy basis.

Closing Thought

Even though a decade has passed, the collapse of Lehman Brothers and AIG bailout in 2008 may still linger in some of our minds. It has served as a stark reminder that the failure of a financial institution is not completely inconceivable. 

While such event might be improbable, the enhancement made to the deposit insurance scheme is definitely a desirable revision that helps to boost the confidence of depositors in Singapore. 

Nevertheless, this recent improvement is likely to have limited effect on the decision to concentrate my deposit in high-yielding savings accounts that allow maximum balance amount which the bonus interest rate applies, to be greater than $75,000. E.g. Standard Chartered Bonus$aver Account ($100,000) and Citi MaxiGain Account ($150,000). 

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Disclaimer: Kindly note that this is not a sponsored post. The author is in no way affiliated with the stated institution and does not receive any form of remuneration for this post. The Boy who Procrastinates has compiled the information for his own reference, with the hope that it will benefit others as well.

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