MRTA vs MLTA: Which insurance do you need?

We are back with another set of acronyms for you! ＼(￣▽￣) This time around, we’ll take you through MRTA and MLTA. If you’re not familiar with the terms, you might think they have something to do with public transportation, but they’re not! MRTA and MLTA are in fact acronyms that you are sure to encounter when buying mortgage life insurance for your home or property, so it’s good to have a basic understanding of each, and the differences between both, of them before you decide which one better suits your budget and needs.

Update: Check out our MRTA vs MLTA Infographic for easy viewing and sharing!

First, let’s start by clearing up what those short forms stand for:

MRTA = Mortgage Reducing Term Assurance

MLTA = Mortgage Level Term Assurance

What is the purpose of these mortgage life insurance?
These are the two types of mortgage life insurance available in Malaysia, which is basically insurance for your mortgage (or housing loan) in case you suddenly kick the bucket (die) or encounter total permanent disability (TPD), resulting in you being unable to pay off your housing loan. Most mortgage officers recommend you to get either an MRTA or an MLTA when buying a new home. As with most things, it’s best to do your own research before agreeing to anything.

Sounds morbid, but it’s actually pretty great, because in the event that either of those things happens to you (not good), the insurance company helps to pay off your housing loan so that your family isn’t burdened by the loan payments (very good). To put it simply, they function as a life insurance for your housing loan which settles your outstanding debt in the event of your death or permanent disability. It provides security to your loved ones from being burdened by home loan repayment if something unfortunate happens to you (the homeowner).

What’s the difference between MRTA and MLTA?
That’s the main reason we’re here – to explain the differences between both insurance policies. As a homeowner, which one is more suited to your needs and finances?
We’ve found some handy comparison tables to make it easier for you to understand how both insurance policies differ and function.

Table 1: Difference between MRTA and MLTA (Source: iMoney)

To sum up the table in words:

MRTA (Mortgage Reducing Term Assurance)
MRTA only serves one purpose, that is to protect your loved ones from being burdened by loan repayments if something happens to you (the homeowner). The sum insured reduces according to the loan tenure, and the insurance is not transferable between properties. The beneficiary of the insurance is the bank, and the insurance is usually financed into the home loan. Payment for this type of insurance is a one-time-only, lump sum paid when purchasing the insurance. Its cash value reduces annually, which drops to RM0 at the end of the loan tenure. In the event of a claim (which means death or TPD), the insurance company will pay the balance of the home loan and the beneficiary will receive the home/property. MRTA acts like a life insurance, the premium is lost in the end.

MLTA (Mortgage Level Term Assurance)
MLTA has the combined benefits of protection, cash value, and savings. The sum insured remains the same on a fixed level sum assured basis (which means the interest rate remains the same even 10 or 20 years later), and the insurance is transferable between the homeowner’s properties. The beneficiary can be anyone, named by the insurance holder. MLTA is usually self-financed, and insurance holders have a fixed periodic payment obligation (monthly, quarterly, semi-annually, or annually). The insurance has a fixed cash value throughout the loan tenure, and in the event of a claim, the insurance company pays the loan balance, and the beneficiary will receive both the property and cash. MLTA acts as a term policy, whereby there is cash-back in the event of no-claim.

Table 2: Sample calculation for MRTA vs MLTA (Source: The Star Archives)

If looking at numbers is more to your liking, Table 2 (above) will provide you a better idea of how MRTA and MLTA works and differs from each other.

• If you are on a tight budget, MRTA might be more prudent for your needs, as you only need to pay one lump sum at the beginning, and your mortgage will be insured until the end of the loan tenure (assuming you take the full loan tenure term). The insurance is non-transferable between properties.
• If you are financially able to bear the monthly premium cost, MLTA will be the ideal choice, as the sum insured remains fixed, in the case of no-claim by the end of the tenure your monthly premium will be paid back, and if claimed, the loan balance will be paid and beneficiary will receive the property plus remaining cash. What’s more, your MLTA can be transferred to another property if you decide to buy a second house.

Getting mortgage life insurance for your property seems to be the smart and logical choice now, doesn’t it? The bottom line is, for those with dependents or next of kin to inherit your property, it’s worth considering. However, if you do not have anyone to leave your property to and money is tight, getting a mortgage life insurance may not be your highest priority.

References:
– iMoney.my: MRTA Vs MLTA: Which Do You Need?
– Free Malaysia Today: What type of mortgage do you need?
– RinggitPlus: How To Insure Your Home Loan: MRTA or MLTA?
– Loanstreet: MRTAs & MLTAs
– Horlic: MRTA vs MLTA – Which One Is The Best Housing Loan Insurance?
– The Star Archives: Mortgage or loan term insurance