One of the major considerations you face when buying a home is how to protect the asset. If something happens to you – an accident, an untimely death, total permanent disability – mortgage insurance ensures your loved ones a free home. In Malaysia, popular mortgage life insurance plans are MRTA (Mortgage Reducing Term Assurance) and MLTA (Mortgage Level Term Assurance.) They provide protection all right but there are key differences you should know to help you choose the plan that is most suitable for you.
What is MRTA?
MRTA (Mortgage Reducing Term Assurance) is a life insurance policy linked to your mortgage that is meant to pay off the balance of your home loan if you die or go under total permanent disability (TPD). The coverage amount decreases as the loan amount is paid down over time. As MRTA is meant to protect the bank’s interest if the borrower should default on repayments, the beneficiary in these policies is usually the lender and not the borrower's family.
The biggest plus of MRTA is that it is cheap. Since the sum assured reduces over the years, the premiums will generally be lower than that of other policies. Once the loan is fully paid, the cover ceases and there is no cash value. It is usually sold with a home loan by banks.
What is MLTA?
MLTA (Mortgage Level Term Assurance), on the other hand, takes a different tack. While MLTA is designed to cover your mortgage, it provides a level of protection only—that means the amount of cover stays the same throughout the term of the loan. You would normally buy this kind of insurance on a stand-alone basis, through your insurance broker. The recipient of the insurance money— your spouse, children, or whoever you nominate—does not have to be the owner of the policy as with MRTA.
Some MLTA policies don’t just protect, but also offer a savings component where you can accumulate cash value. There are even policies that return a part of your premiums. That gives MLTA a bit more flexibility.
MRTA vs MLTA - What's the Difference?
Although both protect your mortgage, there are some fundamental differences between MRTA and MLTA. Here are some of the key differences:
Coverage and Premium Differences
One of the biggest differences between MRTA and MLTA is coverage structure. MRTA provides decreasing coverage—this reflects the way your loan balance decreases over time, so MRTA is only intended to cover the loan balance.
MLTA differs in that it stays fixed throughout the term of the policy i.e. the sum assured does not reduce if you pay off more of the loan. As a result MLTA is more expensive to insure than MRTA, but affords a larger degree of protection.
Transferability and Beneficiaries
Another important distinction involves transferability and beneficiaries. MRTA is not transferable. If you sell or refinance your home, the policy lapses and a new one must be purchased. Additionally, the beneficiary of the MRTA is typically the bank rather than your family, so no cash benefit may go to your loved ones.
The downsides: Typically, MLTA is not serviceable. It is transferable (in case you should sell or refinance your home), and the beneficiary may be anyone, from family to spouse to charity.
Which One is Better for You?
Whether you choose MRTA or MLTA will depend mainly on your personal circumstances. MRTA is particularly suitable for those who need less life cover, perhaps because they have fewer financial dependents or less existing life insurance. It will work best for you if your main concern is whether your home loan is protected in the event of your death for the sake of the bank rather than wanting to leave a legacy for your family. MRTA is also a suitable option if you want a cheap policy that is more closely linked to your mortgage.
But if you’ve got really significant financial dependents (like your spouse and children) and want something more complete, MLTA might work better for you. It covers not just the home loan but also other interests of yours which may not cash-in on the insurance completely (like your family’s finances) at the same time possibly accumulating cash value of its own. MLTA is a good choice for those who want a more long-term policy that bonds a savings plan to protection.
Is Mortgage Life Insurance Compulsory?
Although not compulsory by law in Malaysia, mortgage life insurance is highly encouraged or even required by most banks before they agree to lend you money for a home loan. This is to secure the bank’s interests in the event of your death or permanent disability.
If you don’t have dependents or if your finances are sorted enough that you can pay off the loan in a couple of years, you might consider it worth skipping mortgage life insurance altogether. Sometimes having a broad life insurance policy that covers all bases is sufficient.
Before you say “yes” to MRTA or MLTA, evaluate your long-term goals and your family’s situation. If you intend to pay off your mortgage in a few years, mortgage life insurance isn’t a pressing concern but if you’re just starting out or co-buy with someone else, this could offer you real peace of mind.
How Much Does It Cost?
The price of MRTA and MLTA will depend on your age, the sum of your loan and the length of the mortgage period. For younger borrowers, premiums on MRTA tend to be cheaper as the cover reduces over the years. With MLTA, which offers better all-round protection and a fixed amount of cover, premiums are more costly.
As an example, for a 25-year-old homeowner with a RM540,000 mortgage loan over 30 years, while the MRTA premium would be a one-off payment of RM16,290, the MLTA premium would cost RM223.50 per month (RM76,626 over the same period).
If cost is a critical factor, MRTA may work out considerably cheaper for you, particularly if you have other life insurance or if your mortgage is comparatively small. On the other hand, MLTA allows you greater flexibility and gives you bigger long-term coverage, and there is more comfort in not being completely off the market.
Also think about whether an online loan will impact your home buying process. A loan secured through the internet can make things more convenient, but all loans which operate online will not necessarily have the same terms, or even interest rate that a bank will offer. If you choose to pursue secured loans through the internet as your mortgage young homebuyer, make sure you fully understand the loan terms and how many choices you have.
Conclusion
Both MRTA and MLTA can provide valuable protection for homeowners, but they target different needs and situations. MRTA might be a better fit if you want a low-cost, uncomplicated insurance policy just to cover your mortgage. But if you want extra benefits, including cash value growth and more control over your policy, MLTA is a richer option.
Once you have determined whether to consider MRTA or MLTA, you will want to think about your family's financial needs, your own loan balance, and how long you will be paying off your loan. Understanding the distinctions will assist you in making the choice of which mortgage life insurance will help you stick to your ultimate plans for your money.
By taking the time to review your situation, you can make sure you have the appropriate protection in place, whether that’s MRTA or MLTA, and protect your home and loved ones in the event of a nasty surprise.
FAQ
What is the difference in coverage between an MRTA and an MLTA?
An MRTA provides decreasing coverage that is in line with the decreasing balance of the loan. An MLTA provides a fixed level of coverage for the life of the loan despite the fact that the loan has been paid down.
Which one is cheaper, MRTA or MLTA?
Principally less expensive than MLTA as the cover decreases as time goes by, thus reducing potential liabilities to insurers; MRTA only compensates an amount to repay the outstanding loan if the insured dies or is totally and permanently disabled before the end of the policy term. MLTA is pricier because it provides level coverage and other advantages that come with it. It also allows others besides the bank to cash-in the policy in the event of the insured’s demise.
Is MRTA compulsory when I apply for a mortgage loan?
You are not legally bound to take MRTA, but most banks in Malaysia will only grant a mortgage loan if you acquire mortgage life insurance to cover the amount of the loan. This speaks to their interest in protecting themselves against losses should you die or become permanently disabled.
Can I use MLTA to protect my mortgage and my family?
Yes. MLTA protects your mortgage and your family. Not only is your home loan covered, so is your family — with cash in their hands.