Why mortgage need an insurance? It is optional or it is a must? For new house buyer, you may not understand why your mortgage loan needs insurance. I wish to share some of the information I collected from the various sources.
What is house loan insurance and why it is important?
As we know, we pay a certain premium for the insurance is not for investment purposes, but rather for the protection purposes. So what does house loan insurance protect? It will help you to cover the full amount of mortgage loan in the event of death or total permanent disabled (TPD). In short, your family member can stay the house and the existing loan is settled by the insurer.
How many types of insurance are there in the market for a house loan?
There are a few types of insurance available, the main difference is whether the insured amount is reduced over the loan period, or it is fixed or we called it “levelled” across the full loan term. MRTA (Mortgage Reducing Term Assurance) is obviously the “reduced term”, whereas the MLTA (Mortgage Level Term Assurance) insured amount is fixed across the period.
What are the difference between reduced loan protection or levelled loan protection
MRTA is designed as a protection for your mortgage loan.
If you do not have any basic insurance coverage, having a level term life insurance as a coverage for income replacement and outstanding mortgage loan makes sense.
Both provide mortgage loan protection
Premiums for MRTA are usually lower as compared to other life insurance.
Nevertheless, with increased competition amongst insurers, premiums for level term especially for large sum assured of $1Million coverage and above are very competitive.
MRTA Premiums are lower than MLTA
Critical Illness protection
If you do not have any Critical Illness (CI) protection, by adding a rider to extend the coverage will be more economical than buying a standalone CI plan.
Similar to MRTA, by adding a rider to enhance the coverage will be more economical than buying a standalone CI plan.
Both allow adding of additional rider such CI
Final cash payout
Cash payout will be made to the family. The sum assured for Death and TPD will be reduced accordingly to the interest rate.
Cash payout will be made to the family. Sum assured for Death and TPD benefit remains the same throughout the policy term even as the mortgage loans are being paid down. This means more of the payout can be used for other needs and purposes.
Higher payout from MLTA helps to manage other financial needs beyond mortgage loan.
Above information reference from fund supermart
How to choose if I am first-time house buyer?
This answer very much depends whether you can afford for a one-off payment of MRTA, average around RM5000 to RM8000 when you purchase the house. If you purchase the house for long-term investment, more than 30 years, then MRTA will be a better choice as its premium is lesser. Do bear in mind, there is no direct answer to this question as both the MLTA and MRTA are different in their nature when the insurer company design it. Let me share you one screenshot from the following blog, it has a details comparison of payment, but that comparison is based on data from the year 2013.
How to choose if I already have life insurance?
If your life insurance insured sum is larger than the house loan amount, then you have a choice to lessen your monthly commitment by taking the MRTA as you already have a monthly commitment to your life insurance.
What if I am thinking to sell my house in next 5 years, which is better? MRTA or MLTA?
As you may buy another property right after you sell the current one, you can consider MLTA as you can still “re-use” the MLTA on your next property loan and you don’t need to purchase again. Whereas, if you pay a premium RM5000 for the MRTA, you will not able to transfer them to next property loan.
We hope the information above will able to give you some pointer about what to consider before buying a house in Malaysia. What do you think? Like, share & comment your thoughts. Subscribe for latest updates.