Why do you need Insurance?
MRTA (Mortgage Reducing Term Assurance) and MLTA (Mortgage Level Term Assurance) are insurance products specifically designed to provide financial protection for borrowers and their families in the event of unforeseen circumstances, such as death and disability.
(MRTT and MLTT is the same products as MRTA and MLTA, the only difference is that MRTT and MLTT are the insurance products that follows the takaful principles of Islamic finance.)
The main differences between MRTA (Mortgage Reducing Term Assurance) and MLTA (Mortgage Level Term Assurance) policies lie in their coverage and structure:
- Coverage Scope:
- MRTA: This policy specifically covers the outstanding balance of a mortgage in the event of the insured’s death. It ensures that if the borrower dies before fully repaying the mortgage, the insurance will pay off the remaining mortgage balance, relieving the burden on the borrower’s family or estate.
- MLTA: MLTA, on the other hand, not only covers the outstanding mortgage balance in case of the insured’s death but also provides coverage in the event of total permanent disability (TPD). Therefore, MLTA offers broader protection by covering both death and TPD throughout the loan tenure.
- Premium Payments:
- MRTA: Typically, MRTA premiums are lower compared to MLTA because it provides coverage for death only.
- MLTA: MLTA premiums are usually higher due to the extended coverage for both death and total permanent disability.
- Payout Structure:
- MRTA: In the event of the insured’s death, MRTA pays a lump sum to cover the outstanding mortgage balance at that time. The payout decreases over time as the mortgage balance reduces with regular payments.
- MLTA: MLTA also pays a lump sum in the event of death or total permanent disability, covering the remaining mortgage balance. Similar to MRTA, the payout decreases over time as the mortgage is paid off.
- Additional Features:
- MLTA: MLTA policies may offer additional features such as critical illness coverage or premium waivers in case of disability, providing more comprehensive financial protection beyond mortgage repayment.
MRTA – For protection, sum insured reduces according to loan tenure, it is not transferable and in terms of nomination, the bank is the beneficiary.
- Financing – usually financed in to home loan
- Payment – lumpsum
- Premium – low
- Cash Value – none. it has reducing cash value which drops to 0 at the end of the loan tenure.
- Claim – Insurance company will pay the loan balance to the bank and the beneficiary get the house.
MLTA – For Protection, saving and cash value. Sum insured remains the same on a fixed level sum assured basis. It is transferable and in terms of nomination, the beneficiary can be anyone.
- Financing – usually self-financed
- Payment – Monthly, Quarterly, semi annually or annually.
- Premium – High
- Cash value – Yes, it has a fixed cash value which is guaranteed throughout the loan tenure
- Claim – Insurance company will pay the loan balance to the bank and the beneficiary will receive the home (fully paid) plus the cash.
Main differences of MRTA and MLTA in a glance
| MRTA | MLTA | |
| Critical Illness Benefits | Most not offered | Yes |
| Tight to one loan | Yes | No |
| Underwriting | Health dependent | No health dependent for future loan |
| Beneficiary | Bank | Your Loved one |
| Early Settlement | No | Yes |
| Price | Low | High |
Which type of insurance do you need MRTA or MLTA?
In deciding whether MRTA is suitable for you or MLTA fit your objective typically boils down to the following. As yourself the following questions:
- Short Term or Long Term
Do you buy the property for short term like 3-4 years before flipping it? If that’s the case, chances are you don’t need MLTA and don’t really need the MRTA as well, unless it is a condition by the bank that buying mortgage insurance is compulsory in order to get the home loan.
If you are buying for you kids, which means you may keep the property for the next 10 years or so, getting a mortgage insurance is a must, it acts as a safety net and protect your beneficiary. The bare minimum you need to have MRTA (which is the cheapest) so that when anything unexpected happens to you, you and your loved ones are not burden by the unexpected bills to pay the loan’s balance. If financial allowed, consider MLTA as it gives you interest (typically 4%-8%) instead of charging interest in MRTA. Furthermore, you can pay off the home loan earlier from the cash value you and amount paid by the bank from the interest.
2. Do you have anyone to leave your property to?
Unless you are alone (i.e not married, parents passed away), otherwise you definitely need MRTA to the bare minimum. MRTA provides a safety net to you and your loved ones in case something unexpected happens to you. Get only MLTA if the financial condition allows you to. Remember that, unlike MRTA which you pay lumpsum and can be added to your loan, MLTA is basically a life insurance that you have to pay every year, half-yearly, quarterly or monthly depending your preference. So there is a huge difference in terms of the premium between MRTA and MLTA.
3. Investment?
Top-notch investors usually opt for MLTA when it comes to mortgage insurance. It saves them a lot of money too. For example, an investor may insure for 5 millions sum with MLTA and when he buys a new property, he don’t have to buy a new mortgage insurance, rather than using the existing MLTA that he owns.
In essence, while both MRTA and MLTA provide insurance coverage for mortgage repayment upon the insured’s death, MLTA offers broader protection by including coverage for total permanent disability. MLTA policies generally come with higher premiums due to the extended coverage and additional benefits they provide. The choice between MRTA and MLTA depends on individual financial needs, risk considerations, and the level of coverage desired.