- In Malaysia, there are two types of mortgage life insurance available – MRTA & MLTA
Buying a home is a huge commitment and will take the average homeowner up to 35 years to fully repay. Providing a home for your dependent is a good thing, but if the home loan is not settled in full, it can turn into a burden for your loved ones in the event of death or total permanent disability (TPD).
It is with these unfortunate circumstances in mind that most mortgage officers offer mortgage life insurance policy to home buyers. In the event of death or TPD, the policy frees the borrower’s dependents from any debt as it is designed to pay off the remaining debt on repayment mortgages.
Just like any other life insurance policy, you need to pay a set amount of premium for a mortgage life insurance policy. If you pass away while the policy is in effect, the insurance company pays off your mortgage. Your spouse or beneficiaries can then live in the house debt-free without having to worry about making any mortgage payments.
Which mortgage life insurance do I need?
In Malaysia, there are two types of mortgage life insurance available – Mortgage Reducing Term Assurance (MRTA) or Mortgage Decreasing Term Assurance (MDTA) and Mortgage Level Term Assurance (MLTA).
However, MRTA and MLTA are often misunderstood. Which do you need as a homeowner?
IS IT WORTH HAVING?
Most mortgage officers recommend mortgage life insurance (either MRTA or MLTA) when buying a new home. However, before committing to an insurance policy, it helps to do as much research as you can on the product.
Mortgage life insurance is aimed at providing security to your loved ones from being burdened by home loan repayments if you pass away or are afflicted by permanent disability. 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. For those with dependents however, it’s worth considering.
HOW MUCH DO I NEED TO PAY?
How much premium you need to pay for your MRTA or MLTA is subject to your age, loan amount and your loan tenure. The older you are and the higher the loan amount, the higher the premium you will have to pay.
Just like purchasing life or health insurance, if a person is diagnosed with a certain illness, the insurance company has the right to reject the policy or there will be extra loading in the premium. It depends on how severe the illness is and will only be determined after a medical examination by their panel doctors.
* These figures are used as reference as the interest rate will differ from insurer to insurer.
Understanding what you are purchasing is the crucial in managing your money. If you are unable to pay the premium of MRTA, you can opt to finance the premium into the loan and thus the loan instalment will increase. You will also be paying extra interest as the bank is advancing the money to you to pay the premium.
If your home is refinanced or sold before the loan tenure is over, you can surrender your MRTA policy and claim back the cash surrender value, provided if the evidence of sale is submitted.