Should you buy MRTA/MLTA for your property?
Let’s start this off by saying that I am not an insurance agent and this represents my view as a property buyer rather than someone who wants to sell you insurance.
This post was created out of a recent discussion of whether to opt out of MRTA/MLTA when purchasing a new property. As all property buyers would know, when we apply for a loan, it will be quoted with MRTA/MLTA. Anyone could opt out of this as long as your lender (aka the banks) allow it.
But, should you?
What is MRTA/MLTA/MRTT/MLTT?
For first timers who haven’t heard of this term before, this is essentially life insurance that specifically targets your mortgage.
- MRTA/MRTT = Mortgage Reducing Term Assurance/Takaful
- MLTA/MLTT = Mortgage Level Term Assurance/Takaful
The difference between the A-series and T-series is whether it’s Islamic or not. As far as I’m aware, nothing in the contents of these 2 differ when it comes to conventional vs Islamic.
The purpose of this insurance is to ensure that your mortgage will be paid off in the event of your death and/or total permanent disability. If you want it to fully cover your loan then you would have to ensure that the value, term, tenure is the same as your mortgage.
If you were to surrender the policy (i.e. cancel it) earlier than the expiry tenure (e.g. 20, 25, 30 years), there will be a cash value that you would get back from this.
Difference between MRTA and MLTA:
- MRTA is tied to the property you took the mortgage on and the payout amount for claims will reduce as you pay down your mortgage.
- MLTA is tied to you personally and the payout amount for claims will be the same throughout the insurance tenure. Think of it as a life insurance, but the payout in case of claims will go to paying down the mortgage first before crediting the remaining amount to you in cash.
Let’s say you took RM200k loan for property A. In 15 years, your remaining loan amount is RM100k. MRTA’s payout amount will be RM100k but MLTA’s payout will still be at RM200k (RM100k paid to your bank, RM100k paid to your nominee).
Of course, the premiums for MLTA will be significantly higher than MRTA. We’re talking about RM10k vs RM100k – about 10x.
You can read more about MRTA and MLTA in this guide by PropertyGuru.
The BIG question: Should we get it?
Now that we know what MRTA/MLTA is, should we get it?
This insurance is actually not for us, but for the sake of our dependents (and the banks, obviously). Think about it: It is only beneficial when we die.
That got dark.
To be able to answer the question, we need to address 2 things:
- Firstly: Will we have any dependents – Husband/Wife, kids, old folks, etc?
- Secondly: Do we have sufficient insurance in case of death?
Let me give you a scenario.
Real life case study about life insurance
I met a client recently and we got to talking about his childhood.
He was born in Port Dickson and spent most of his childhood there. At the age of 19, his father passed away. Without MRTA/MLTA or any life insurance. His mother was not working and he has a young sister.
The bank repossessed the house because they couldn’t pay for it and they had to move to a much smaller space overnight. He had to rise up to the occasion and start working to make money together with his mother.
As he recalled that memory, I could see and feel the amount of hardship he had to go through during that period of his life. Good thing is it all worked out for him eventually and he has a pretty successful business now.
He closed off by saying, “That was my father’s legacy. Who knows what would happen if my dad had insurance to help us go through that period of my life? I might not have built this business, but similarly, I could have failed in this business. I was just lucky it all worked out.”
Closing Thoughts
The final decision lies with us.
One of the biggest debts we could ever take up is a mortgage loan. It is also tied to our most basic needs – Home.
In my opinion:
MRTA/MLTA is a necessity to ensure a peace of mind for a relatively low cost.
The decision between MRTA and MLTA will be dependent on whether you have life insurance or not.
- If you do, then you could very well save the cost of MLTA and go for MRTA which is easily 5x – 10x lower premiums.
- If you don’t, then you could consider opting in for MLTA and it will become part of your life insurance.
Why risk the future of your dependents just to save RM15k now?
I have 2 properties now, both with MRTAs, and I will not hesitate to take on more MRTAs in the future if I were to acquire more properties. I have a well-covered life and medical insurance outside of this already.
*Caveat: Not an insurance expert. Just expressing my viewpoint as a property buyer.
