Soft breeze brushed against Caleb’s cheek as he stood in front of his own home, dumbfounded. He is still in disbelief that such misfortune could happen onto him. His beautifully renovated house that was purchased 5 years back is about to be taken back by the bank. He has no other way to pay for the installment when he lost his income stream due to cancer. With all the undergoing chemotherapy treatments, Caleb has no choice but to quit his job and properly rest. His wife, Cindy is only earning very little and is unable to help with the home loan installment.
At this point of time, many of us thought we could rely on the MRTA insurance that is mostly made “compulsory” by the banks upon applying our home loan. However, little did you know that MRTA can only safeguard your asset upon death or total permanent disability (If you included this benefit). It will not be of any use in the case of Caleb where he lost his source of income due to illness. Hence, in this article, we will explore all the life insurance options available in protecting and safeguarding your asset.
WHAT ARE THE TYPES OF MORTGAGE INSURANCE?
In Malaysia there are currently 3 different types of plan that you may consider in protecting your asset, your family or both.
Mortgage Reducing Term Assurance (MRTA)
Mortgage Reducing Term Assurance (MRTA) is a Term plan which the coverage is limited to a certain term and it decreases over time. If you have a 35 years MRTA plan, you will see that your coverage will be 0 at the end of the 35 years term. Most of us usually commit into it, given the little knowledge and it seems affordable when we only need to pay a little bit extra in our house installment every month
However, do you know that if you add it up to your house instalment, you are actually paying double the amount? At the end of the day, this option may be more expensive than the other mortgage insurance.
Yes, banks may offer you lower interest rate if you take up MRTA with them, but is that small difference of % worth the extra amount you need to pay for MRTA?
Mortgage Reducing Term Assurance (MRTA)
Mortgage Level Term Assurance (MLTA) is an Investment Linked plan. As the name explains, the coverage is level whereby it remains the same for the whole coverage term. MLTA offers you the option to be insured for 30 years or 99/100 years, depending on the insurance company of your choice. This allows you to “transfer” coverage to your next property when you sell off your current one. Save you a lot of money!!
Furthermore, this plan has a portion of investment whereby your premium will not go to waste. You may treat it as a discount which ultimately reduce your cost in getting a mortgage insurance.
In case of financial uncertainty where you can’t pay the premium, the cash value in the plan can help sustain your plan! Or, you may even withdraw it out to help you with your mortgage instalment in bad times.
Mortgage Increasing Term Assurance (MITA)
Mortgage Increasing Term Assurance (MITA) is a Whole Life plan which the coverage increases over time up to a term of 85 years old and above. This allows you to “transfer” coverage to your next property when you sell off your current one. Save you a lot of money!!
The plan has a balanced portion of savings and coverage, offering you a stable return of 3% to 5%. After 15 years, you will be getting more than what you paid for, and eventually you can use it to settle your mortgage earlier which save you a lot of interest.
Similar to MLTA, in case of financial uncertainty where you can’t pay the premium, the cash value in the plan can help sustain your plan! Or, you may even withdraw it out to help you with your mortgage instalment in bad times.
Here are the major differences between MRTA, MLTA and MITA:
DO I NEED MORTGAGE INSURANCE FOR MY INVESTMENT PROPERTY?
YES! You definitely should also still get one to protect and safeguard your investment property. However, many of you will question what is the point if you or your family can sell off the property at any point of time of any misfortune?
Sure you can sell it off but how long will it take to look for a buyer? Once you found a buyer, the process of changing the property ownership will take a much longer time than you expected. Therefore, during this period of time, you or your family member will still need to service the home installment or the bank will have the right to take back your property.
It is definitely wise to get a substantial amount of coverage as a “buffer” while selling off the property. You can definitely opt not to cover your full mortgage amount as it is not needed.
SHOULD I BUY FROM THE BANK OR AN INSURANCE ADVISOR?
Do note that if you buy MRTA from the bank, your policy is non-transferable. If you plan to have more than 1 property in the future, you will have to buy a new policy every time you purchase a new property in the future, and the premium will be higher in accordance to your age. You may enjoy a slightly lower interest rate by getting from the bank, but you will save even more if you get the MLTA, MITA or a hybrid of both instead!
Furthermore, it is always better to have someone to assist us with the claim rather than handling it by ourselves if we were to buy from the bank.
Do note that if you buy MRTA from the bank, your policy is non-transferable. If you plan to have more than 1 property in the future, you will have to buy a new policy every time you purchase a new property in the future.
What is your choice? If you are indecisive or in budget-constraint, you can always do a hybrid of 2 plans. For example, you can split 250,000 coverage with MLTA and the remaining 250,000 coverage with MITA. Contact us for a personal consultation!