Secure whatever we own, literally. Perhaps a lock or even a safe could do that for some valuables that we have. Protect what we have right from the beginning. As they say prevention is better than cure. Health is wealth, agree? Well, without investing a bit, it’s hard to protect our wealth if something happens to our health. Perhaps a medical card could help tremendously when something negative happens. So, how do we protect our property investment? In fact, how do we protect our only home sweet home which is also shared by all our loved ones? There are two mortgage life insurance that we may consider. They are the Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). What would be the differences between them? Let’s look at them briefly.
Mortgage Reducing Term Assurance (MRTA) is a life insurance plan with decreasing sum assured over period of time and it helps to cover our remaining home loan. This is usually offered by banks when we take loans from them. If something were to happen to us during the mortgage loan period and we could no longer repay the loan, the MRTA kicks in and takes care of it.
Mortgage Level Term Assurance is for borrowers who prefers to buy a life insurance which offers both protection plus savings and maybe even returns on the premium. So, this can act like a personal insurance designed to protect you and your dependents in the event of death or TPD which had befallen the borrower causing him / her the inability to continue repaying the home loan. So, which one should we take then?
Let’s look at the cost FIRST. Please take a look at a comparison when it comes to the premium sourced from imoney.my Okay, it’s around 11 times higher even if by the end of the 30 years, the person who took up MLTA may get back an amount which is higher than the premium paid.
Differences Between MRTA And MLTA
| MRTA | MLTA | |
| What’s inside? | Protection | Protection, saving and cash value |
| Protection | Sum insured reduces according to loan tenure | Sum insured remains the same on a fixed level sum assured basis. |
| Nomination | Beneficiary is the bank itself | Beneficiary can be anyone |
| Transferable | Not Available | Yes |
| Financing | Usually financed into home loan | Usually self-financed |
| Premium | Low | By far higher |
| Payment | Lump sum | Periodic (monthly, quarterly, semi-annually or annually) |
| Cash value | None and with the reducing cash value, at the end of the loan tenure, it drops to RM0 | Guaranteed fixed cash value throughout the loan tenure |
| Claim | Banks receives the remaining loan amount from the insurance company. Beneficiary gets the home. | Bank receives the remaining loan amount Beneficiary receives the home plus cash. |
When we look at the amount, it’s cheaper to get the MRTA. However, always remember that MRTA provides protection on a reducing balance basis and the beneficiary basically gets just the home. If homeowners are already protected by life and medical insurance and does not have other financial burdens, MRTA is suitable. MLTA meanwhile provides homeowners with extra financial protection in the event of death or TPD because it has a cash value at the end of the policy. For families with kids or even a housewife spouse, this would provide a better protection. Remember though that we should always protect our wealth. There are certainly other types of insurance which we should have beyond just these two; MRTA or MLTA. If you need recommendations of good agents for MLTA, do let me know. Cheers.
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written on 29 Mar 2018
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