I have been asked in numerous occasions during or after my seminar whether a loan borrower should take up Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). In this article I would like to shed some light for the benefits of everyone.
I will not be elaborating much on MRTA in this article as I have already wrote about it at length during my last article.
I would like to introduce to all of you, Ms Elane Goh, Agency Manager of Hong Leong Assurance who is an expert in MRTA and MLTA in which I have interviewed her prior to writing this article. Thank you Elane for being so patient with me.
What actually are the major differences between MRTA and MLTA? Let’s take a look at the following table summarize from my discussion with Elane. Let’s take a look at the following table comparing the 2 Insurance Products.
Ultimately, if you asked me which one is better depends on your budget. If you are on a tight budget buy MRTA which is cheaper and you can also get the banks to finance in your loan and pay the interest monthly. If you have the additional budget than I will recommend MLTA as the coverage is much better and also you will get your premium back when the tenure ends.
Whichever the case is, every property purchaser be it 1st time purchaser or investors I strongly encourage to buy either MRTA or MLTA to protect your property and your love ones.
What I really like about MLTA and especially for property investor is the flexibility. Let’s say you bought Property A then you sold it and bought Property B. You can continue to us the same MLTA and top up the difference which is cheaper than buying a new policy. Remember, as we aged the insurance premium will be more expensive. You can lock in MLTA at an early aged which is cheaper and continue to use it for your subsequent properties purchase.
According to Elane, in terms of financial planning the cash value accumulated from the premium collected after certain years (surrender value) can also be used to pay off the remaining outstanding loans in the bank. If you were to take a 30 years loan , you might be able to make a full settlement much earlier using the Surrender Value of your insurance premium.
MRTA has very limited coverage but for MLTA you can always buy additional “rider” example critical illness for extra protection. You can always add on after you have purchase the policy.
In MRTA when it comes to claims, the insurance company will only pay the loan outstanding amount whereas MLTA after the loan outstanding have been paid the balance of the insured amount will go to the beneficiary.
Please also take note that in MRTA there is an interest rate associate to the coverage amount. Most of you might not be aware that when MRTA is calculated the agent or the banker will have to key in an interest rate. If for example there is a claim and at that time the Base Lending Rate (BLR) ot Base Rate (BR) is higher than the interest rate being keyed in, you might not receive the full amount of claim to cover your loan outstanding. Normally, the agents or bankers will put at least 1.5% or 2% interest higher than the current interest rate.
Please take note that MLTA is far more expensive than MRTA. Only take when you have a budget.
I hope the above will answer most of your queries. If you would like to know in more detail you can also call Ms Elane at +016 442 2903 as she is an expert on insurance.
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