Buying a home is an extremely high commitment and the homeowner have to take up to 35 years to pay-off the home loan. In such a long period of time of loan tenure, the homeowners must protect their home and family even when they are no longer around.
Every homeowners should think about this question before buying a house “what if the home loan is not settled in full and you’re passed away in sudden incident?”. If you buy a house without put this into your consideration, it can turn into a tragedy and bring your loved one a huge burden in the event of total permanent disability (TPD) or even death.
When you taking a home loan with the bank, you may heard the bank officers told you about the mortgage life insurance policy. This type of insurance is designed to pay-off the remaining debt on repayment mortgages in the event of death or TPD.
Its similar with others life insurance policy which you need to pay a certain amount of premium for a mortgage life insurance policy. In the event of death or TPD, the insurance company will pay-off your remaining mortgage loan and your spouse or beneficiaries can then continue to live in the house with debt-free as they need not to worry about making any mortgage payments.
Now, you’re understand the important of mortgage life insurance policy.
In Malaysia, there are 2 common type of mortgage life insurance available which is Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). In today, we will briefly explain these 2 type of mortgage life insurance and you can take it as a reference.
Mortgage Reducing Term Assurance (MRTA)
Mortgage Reducing Term Assurance also known as MRTA, it is a life insurance plan with decreasing sum assured over period of time and its just help to cover your remaining home loan. This insurance is offered by the banks when you taking up the mortgage loan with them, it is designed to protect the banks themselves in case of a borrower is no longer repay the loan.
Mortgage Level Term Assurance (MLTA)
Mortgage Level Term Assurance also known as MLTA, it is a slightly different from MRTA. It’s offers an alternative for a borrower who is looking for a life insurance which is protection plus savings and in some policies returns on the premium. This is kind of a personal insurance, which designed to protect you and your dependents’ financial in the event of death or TPD that caused you can’t continue to repay the loan.
The Differences Between MRTA And MLTA
| MRTA | MLTA | |
| Designed For | 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 | High |
| Payment | Lump sum | Periodic (monthly, quarterly, semi-annually or annually) |
| Cash value | None. It has a reducing cash value which drops to RM 0 at the end of the loan tenure. | Yes, It has a fixed cash value (guaranteed) throughout the loan tenure |
| Claim | Insurance company will pay the remaining loan amount to the bank and the beneficiary will received the home. | Insurance company will pay-off the remaining loan amount to the bank and beneficiary will receive the home plus cash. |
Summary
MRTA is most suitable for those homeowners who have independent life and medial insurance and don’t have many financial burden. However, do aware of this type of insurance because it is only protect your home loan if there is still have remaining loan amount in the event of death or TPD. In addition, your dependents will not getting any single cent from the policy in these events as the beneficiary is the bank itself and not your dependents.
On the other hand, MLTA is most suitable for those homeowner who need an extra financial protection in the event of death or TPD as it has a cash value at the end of the policy. This is great for those homeowner who have many financial dependent, for instance, young children and a full time housewife spouse.
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