MRTA vs MLTA: Key Differences and Benefits

When purchasing a home, one of the most important decisions you’ll face is how to protect your investment. If something happens to you—whether it’s an unforeseen accident, death, or total permanent disability—mortgage insurance can ensure your loved ones are not burdened with your home loan. In Malaysia, two popular options for mortgage life insurance are MRTA (Mortgage Reducing Term Assurance) and MLTA (Mortgage Level Term Assurance). Both provide protection, but they come with significant differences. Understanding these differences will help you decide which one best suits your needs.

What is MRTA?

MRTA (Mortgage Reducing Term Assurance) is a life insurance policy that is typically tied to your mortgage. Its primary purpose is to pay off the balance of your home loan if you pass away or suffer from total permanent disability (TPD). The coverage amount decreases over time as the loan balance reduces. Since MRTA is designed to protect the bank’s interests in the event that the borrower cannot continue paying the loan, the beneficiary of this insurance is usually the lender, not the borrower’s family.

One of the key benefits of MRTA is its affordability. As the sum assured decreases over time, the premiums are generally lower compared to other types of life insurance policies. However, once the loan is paid off, the coverage ends, and there’s no accumulated cash value. It’s often packaged together with home loans by banks, making it a convenient choice for many homebuyers.

What is MLTA?

MLTA (Mortgage Level Term Assurance), on the other hand, offers a different approach. While MLTA also covers your mortgage, it provides a level of protection where the coverage amount remains constant throughout the loan tenure. This type of insurance is often purchased independently of your home loan, typically through an insurance broker. Unlike MRTA, MLTA allows you to nominate anyone as the beneficiary—whether it’s your spouse, children, or another person you trust.

Besides just offering protection, MLTA can also have a savings component, providing cash value over time. Some policies even offer returns on premiums, adding an element of investment. This makes MLTA a more flexible option for those who want more than just basic mortgage protection.

Key Differences Between MRTA and MLTA

While both MRTA and MLTA serve similar functions in terms of protecting your mortgage, there are some notable differences between the two. Below, we explore the key distinctions:

Coverage and Premium Differences

One of the most significant differences between MRTA and MLTA is the structure of coverage. MRTA provides decreasing coverage, which aligns with the way your loan balance reduces over time. As such, it’s only meant to cover the outstanding amount of the loan.

MLTA, on the other hand, offers fixed coverage throughout the duration of the policy. This means the sum assured remains the same regardless of how much of the loan you have repaid. Because of this, the premium for MLTA is typically higher than that of MRTA, but it offers more comprehensive protection.

Transferability and Beneficiaries

Another important distinction is the issue of transferability and beneficiaries. MRTA is not transferable. If you decide to sell or refinance your home, the policy will be void, and you’ll need to purchase a new one. Additionally, the beneficiary of the MRTA is usually the bank, not your family. This means your loved ones may not receive any cash benefit from the policy.

In contrast, MLTA offers more flexibility. It is transferable, meaning that if you sell or refinance your home, the policy can still be valid. The beneficiary of the policy can be anyone you choose—whether it’s a family member, spouse, or even a charity. This gives you more control over who benefits from your insurance in the event of your death or disability.

Which One is Better for You?

Choosing between MRTA and MLTA largely depends on your individual needs and circumstances. MRTA is often better suited for individuals who have minimal financial dependents or other life insurance coverage. It’s an ideal option if your primary concern is protecting your home loan for the benefit of the bank, rather than leaving a financial legacy for your family. MRTA is also a good choice if you're looking for a low-cost insurance policy that is tied directly to your mortgage.

However, if you have significant financial dependents—such as a spouse and children—and you want more comprehensive coverage, MLTA may be a better option. It not only covers your home loan but also provides additional financial protection for your family, along with the possibility of cash value accumulation. MLTA is especially beneficial for those looking for a more long-term insurance plan that combines protection with savings.

Is Mortgage Life Insurance Compulsory?

While mortgage life insurance is not legally mandatory in Malaysia, most banks strongly recommend or require borrowers to purchase it before approving a home loan. This is because mortgage life insurance ensures that the bank’s interests are protected in case of the borrower’s death or disability.

However, if you don’t have dependents or if your financial situation allows you to pay off the loan within a few years, you may choose not to purchase mortgage life insurance. For some individuals, having a general life insurance policy that covers a range of situations may be enough.

Before committing to MRTA or MLTA, it's essential to evaluate your long-term financial goals and your family’s needs. If you are planning to pay off your mortgage within a few years, mortgage life insurance may not be a priority. But if you’re in it for the long haul, or if you’re co-buying with someone else, mortgage life insurance could provide significant peace of mind.

How Much Does It Cost?

The cost of MRTA and MLTA depends on various factors, including your age, loan amount, and the loan tenure. For younger borrowers, the premium for MRTA tends to be lower because the coverage decreases over time. However, if you choose MLTA, which offers more comprehensive protection and a fixed coverage amount, the premium will be higher.

For example, for a 25-year-old homeowner with a RM540,000 mortgage loan over 30 years, the MRTA premium would amount to a one-time payment of RM16,290, while the MLTA premium would cost RM223.50 per month, amounting to RM76,626 over the same period.

If cost is a major factor in your decision, MRTA may be more affordable, especially if you have other life insurance or if your loan is relatively small. However, MLTA offers greater flexibility and more substantial long-term protection, making it a better option for those who can afford the higher premium.

Additionally, consider how an online loan might impact your home buying experience. Online loans can offer a streamlined process for securing financing, but they may also come with different terms or interest rates compared to traditional bank loans. If you are considering an online loan for your mortgage, ensure that you fully understand the loan terms and the options available to you.

Conclusion

Both MRTA and MLTA provide valuable protection for homeowners, but they cater to different needs and preferences. If you want a low-cost, straightforward insurance policy to cover your mortgage, MRTA may be the right choice. However, if you’re looking for additional benefits, such as cash value accumulation and greater control over your policy, MLTA is a more comprehensive option.

When deciding between MRTA and MLTA, consider factors like your family’s financial needs, the amount of debt you have, and how long you plan to service your loan. Understanding the key differences will help you choose the mortgage life insurance that aligns best with your long-term financial plans.

By taking the time to assess your situation, you can ensure that you have the right protection in place, whether it's MRTA or MLTA, and safeguard your home and loved ones from the financial burden of an unexpected event.

FAQ