Difference between MRTA and MLTA

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Basically, MRTA is the abbreviation of Mortgage Reducing Term Assurance. For those who don’t know what MRTA means ,it’s a life insurance plan which provides you with a decreasing sum assured over time, especially tailored to cover the home loan you took from the bank.

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Usually, after you purchase your property, the bank officer will ask you to buy a hassle-free, one-time payment, bank MRTA, which is financed into the loan! Also, you only pay a little bit extra every month to cover yourself in the case of a misfortune on yourself, so awesome!

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Little do you know, that a MRTA policy may not protect both your assets as well as your family? This is because the beneficiary for an MRTA policy is the bank. In the case of any misfortune, the bank will get the outstanding balance of your mortgage loan from the insurance company.

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“So how?, My family still ok mah, pay a little bit more only but if I die they get the house, the bank gets the money! Right..?”.

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So what happens? The bank will get the remainder of what you owe, saving themselves. On the other hand, your house will be frozen under the estate, your assets will be utilized to pay for your other outstanding liabilities, the clearing of your outstanding taxes (including those you didn’t clear over the years), to settle the legal and accounting expenses involved. In this process, if your asset is more than your liabilities, then your family will receive the difference. So, “What if my liabilities more than my assets leh?”. Your estate will be declared as bankrupt or insolvent, and your family is now forced to walk away from the house you wanted to buy for them, even though the insurance proceeds for that ‘one-time payment, hassle-free mortgage assurance’ has been paid out. Unfair hor?

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In a nutshell, the bank MRTA is to protect themselves. You and your family are also being protected, don’t get me wrong! Protected only if your assets are more than your liabilities.

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So what’s the better choice? A personal MLTA – Mortgage Level Term Assurance.

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The purchase of a MLTA is different from that of a MRTA. It is definitely a little bit more expensive, but can be divided into monthly payments. With a personal MLTA, the beneficiary is your family. So if anything happens right, your family will get the insurance money, all of it. The best part is, the insurance proceeds paid out to your family is protected under s.166(2) of the Insurance Act of Malaysia 1996.

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“(2) Notwithstanding any written law to the contrary, a payment under subsection (1) shall not form part of the estate of the deceased policy owner or be subject to his debts.”

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What does this section 166(2) mean? It means that the money, will be paid directly to your nominees provided the nominations are done right and it’s a trust policy. I’ll make a separate post on nominations and will-writing later. Your house will still be frozen, and subject to the same estate execution. If you have more assets than your liabilities, then your family is able to get something, else they get peanuts, but in this case they already got the insurance money and bank cannot come and kacau them. Can use the money to buy a new house.

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So what if my assets are more than my liabilities? Oh, then your family gets both the house and the money lor. Makes sense? The best thing is, your MLTA has cash value, as opposed to a MRTA which has next to nothing of value. This can possibly help you pay off your loan earlier! (debt cancellation, I’ll make a post on that later as well) The next best thing is that if you already settled your loan without using the cash value inside the MLTA, you can make a partial withdrawal to settle down-payment for another house, then transfer the MLTA to your other new mortgage loan.

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After saying all that, we’re left with a choice. I would personally choose MLTA any time of the day based on the above, but what about you?

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What is your choice? If you’ve made a choice to choose a MLTA over an MRTA, tell your bank officer you already have a MLTA policy. You can contact us if you’re interested in getting a MLTA to for yourself instead of a MRTA with the form below and we’ll try to work something out for you.

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