MRTAs and MLTAs are variants of life insurance products. Known as Mortgage Life Insurances, they are designed to pay off the outstanding loan balance in the event that the borrower dies or suffers from total and permanent disability (TPD) before the loan is fully paid off.
There are two types of mortgage life insurance available:
1) Mortgage Reducing/Decreasing Term Assurance (MRTA or MDTA)
2) Mortgage Level Term Assurance (MLTA)
Note: MRTT / MLTT = Takaful equivalent
Mortgage Reducing/Decreasing Term Assurance (MRTA or MDTA) / Takaful (MRTT)
MRTA or MDTA is a reducing term life insurance:
- It protects the borrower against death or TPD
- The sum assured reduces with time – Gradually decreases to nothing by the end of the tenure
The premium for this insurance is dependent on the sum assured and the tenure of coverage, as well as other factors pertinent to life insurances (E.g. Age, gender). Customers can choose the tenure and sum assured, and the premium is paid up front.
One thing to note is that MRTA/MDTA policies follow the property loan rather than the policy owner. As such, a new policy has to be taken for each new property that a person has, or whenever he refinances his loan. Some banks/insurance allow transfers of MRTA policies to another property upon request, but this is rare.
It has become common for borrowers to take up this policy along with a mortgage loan for a few reasons:
- Most convenient, as it is typically packaged as an option together with the loan
- Some lenders allow the cost of insurance to be added to your loan amount
- Some lenders offer better interest rates if a borrower signs up for a MRTA/MDTA policy with them.
- The idea behind MRTA/MDTAs is that as your loan balance decreases over time, so should the sum assured, thus saving on premiums. The premium for this type of insurance is cheaper than MLTAs
Mortgage Level Term Assurance (MLTA) / Takaful (MLTT)
MLTA is closer in nature to traditional life insurance policies:
- It protects the borrower against death or TPD AND (Key difference) Option for 36 Critical Illnesses.
- The sum assured does not decrease with time.
- Borrowers can choose to expand their coverage to include more than death or TPD (E.g. 36 critical illnesses).
- Borrowers can choose to have a savings feature, where a portion of the premiums paid accumulate as a cash surrender value.
MLTAs are not typically packaged as an option together with the loan, but must be taken up separately with 3rd party insurance providers. Premiums are higher than MRTAs, and are paid on a monthly, quarterly, half-yearly, or yearly basis.
MLTA policies are transferable to other properties. As such, the policies can be used to insure new property loans, or when you refinance the property. Borrowers can adjust the sum assured as required without having to prove your health/age again.
This option is more commonly used by more sophisticated borrowers for short term property purchases.
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