Let’s backtrack a little bit so we don’t get ahead of ourselves. What even are MRTA and MLTA? Well, they’re two different types of home loan insurance commonly offered in Malaysia. They stand for Mortgage Reducing Term Assurance and Mortgage Level Term Assurance respectively. Insurance for your life and your home are often talked about, but not many know about the ones you can get for your home loans. So what exactly is it? Should you get one? Which one should you get?
The Purpose of Home Loan Insurance
Like any type of insurance, it’s there to protect you and your loved ones financially if something unfortunate happens. Let’s say you’re the sole breadwinner of your household; you have a stay-at-home spouse and kids…this means that your income is taking care of the home loan payments and sustaining the family. What if something happened to you? Where does that leave your family financially? Home loan insurance exists for these exact circumstances. If something happens to you, the insurance company will pay off your remaining mortgage debt to the bank, thus relieving the burden of loan repayments from your family.
MRTA is the more basic of the two policies. The amount of coverage decreases over time as you pay back more and more of your mortgage and insures that the lender receives the outstanding amount owed if the borrower is no longer able to pay. Often the bank will offer this plan to you at the same time that you get your financing as it serves in their best interest.
For some people, it’s not enough to simply pay off the home loan. They want more coverage for their dependents in the worst case scenario. These folks might be inclined to choose the MLTA plan. This not only pays off the home loan but also includes savings and a return on the premium (depending on the insurance body).
MRTA, then, is more for those who do not have many people that rely on them financially while MLTA is ideal for those with several dependents.
Method of Payment
As with any other type of insurance, a premium has to be paid at the beginning of the coverage tenure. The amount you’ll have to pay depends on a variety of things like your age, medical background, loan tenure and amount. You may choose how long you want duration of the insurance to be as well as the sum you want assured. Prices will of course differ from company to company.
If you don’t want to or can’t pay the premium upfront in one lump sum, banks will often include a portion of it into your home loan payments. In fact, some will offer better interest rates to those who take the MRTA plan with them and pay in instalments. This isn’t usually the case for MLTAs as those must be bought from a separate insurance body.
Premiums for the policies with more coverage are going to be pricier than others, but you should think twice before you zero in on the cheapest option. That decision might impact how protected and able to survive your dependents are later on, especially if you’re the family’s sole breadwinner.
So do you really need to insure your home loan? The general consensus from financial experts is that if you bought the home loan yourself, you don’t have dependents and you don’t have the money to spend on the insurance premiums then it doesn’t have to be at the top of your priorities. However, if you co-bought the loan with someone else, you have dependents and/or you have a long time to go before your loan is fully repaid, it might be something you should consider. If you have friends or family who are homeowners, talk to them about this and think carefully before you make a decision.
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