- Mortgage Reducing Term Assurance (MRTA); and
- Mortgage Level Term Assurance (MLTA).
MRTA is a life insurance plan with decreasing sum assured over time, and it used just to cover the home loan owed to bank. This mortgage insurance plan is usually offered by the bank where the borrower is getting the mortgage from, as it is used as protection for the bank in case of misfortunes that stop the borrower from servicing the loan. This plan is usually suitable for those who have adequate standalone life and medical insurance, and do not have many financial dependents. This type of insurance will only take care of the home loan, if it is not fully repaid in the event of total permanent disability (TPD) or death. The family of the decease will not get a single benefit from the policy in these events, as the beneficiary is the bank, not your family members.
MLTA is a slight variation from MRTA and offers an alternative for a borrower who is looking for a life insurance which offers protection plus savings and in some policies returns on the premium. This is a personal plan, where the borrower and his/her dependents are financially protected when the borrower is no longer around, or have lost the ability to generate income This plan is usually suitable for those who need an extra financial protection in the worst case scenario, as it also has a cash value at the end of the policy. This is best for those who have many financial dependents, for example young children and a spouse who is not working.
The following is the major differences between MRTA and MLTA:
| Description | MRTA | MLTA |
| Purpose | Protection | Protection, Savings and/or cash value |
| Coverage | Covers the outstanding housing loan on a decreasing sum assured basis. | Covers the outstanding housing loan on a fixed level sum assured basis. |
| Payment | Lump sum payment by cash or usually financed into housing loan. | Paid periodically on a monthly, quarterly, semi-annually or annual basis. Usually self-financed. |
| Total Premium | Lower | Higher |
| Nomination | Bank is the beneficiary | Anyone can be the beneficiary |
| Transferability | No | Yes |
| Typically considered for buyer who plans to own the house in a longer term. | Typically considered for buyer who plans to sell the house in short-term. | |
| Cash Value | No | Yes |
| It has a reducing cash value, which drops to RM0 at the end of the loan tenure. | It has a fixed cash value (guaranteed) throughout the loan tenure. | |
| Claim Outcome | Insurance company will pay the loan balance to the bank & the beneficiary will receive the home | Insurance company will pay the loan balance to the bank & beneficiary will receive the home plus cash |
In general, if one plans to clear his/her home loan/mortgage within a few years, an MRTA or MLTA may not be on the top of your list. However, if one plans to service his/her home loan/mortgage until the end of the loan tenure, and in particularly if one is co-buying with someone else, it would be worth to consider having the mortgage life assurance as protection.
For example, if one purchases a property with his/her spouse, and each commits to pay 50% of the repayment every month, a death or permanent loss of income may be a huge blow on the couple’s finances. Having a mortgage life insurance will assure that the couple will not lose their property even if one of them is unable to pay for the mortgage.
On the premium for the MRTA or MLTA, it is subjected to the age of the buyer, loan amount and loan tenure. The older the buyer and the higher the loan amount, the higher the premium one will have to pay.
Similar to purchasing a life or health insurance, if a person is diagnosed with a certain illness, the insurance company has the right to reject the policy or there will be extra loading in the premium. It depends on how severe the illness is and will only be determined after a medical examination by their panel doctors.
| Description | MRTA | MLTA |
| Age | 28 | 28 |
| Property Value | RM500,000 | RM500,000 |
| % Financing | 90% | 90% |
| Coverage | RM450,000 | RM450,000 |
| Interest Rate | 6% | 6% |
| The interest rate may differ from insurer to insurer. | ||
| Premium | RM11,695.50 (one-time) | RM4,081.50 (annually) |
| RM357.13 (monthly) | ||
| Total Cost (over 30 years) | RM11,695.50 | RM122,445.00 |
| No Claim Cash Back (over 30 years) | RM0 | RM184,383.00 |
| Payment if TPD in 2020 | RM411,300.00 | RM450,000.00 |
| Payment if loss of life in 2020 | RM411,300.00 | RM450,000.00 |
In summary, understanding what one is purchasing is important. If one is unable to pay the premium of MRTA, he/she can opt to finance the premium into the loan and thus the loan installment will increase. The buyer will also be paying extra interest as the bank is advancing the money to him/her to pay the premium.
