As an investor in Malaysia, if you’re looking to secure financing for an investment property you’ll want to know which type of insurance will protect your property and future finances. There are two types of mortgage insurance among the popular ones in Malaysia: Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). Both policies provide life insurance for the death or total permanent disability of the covered person, but the premiums and the coverage structure and how they fit into your financial goals differ for each.
In this article, we’ll clarify the main differences between MRTA and MLTA, so you can choose the one that fits your investment property best.
What is MRTA Insurance?
Mortgage Reducing Term Assurance (MRTA), is a type of insurance policy that covers the outstanding loan balance on your mortgage if you were to die or become totally and permanently disabled. MRTA is special because the amount of coverage decreases over time as you make regular mortgage loan payments, just like the mortgage loan balance.
Key Features of MRTA Insurance:
- Decreasing Coverage: Your coverage amount decreases in proportion to the outstanding balance of your mortgage.
- Lower Premiums: MRTA premiums are generally lower than MLTA because the coverage reduces over time, and therefore it is an affordable option for many homeowners and property investors.
- Duration of Policy: The policy term is normally the same as the tenure of the mortgage loan, which can be 10 to 45 years.
- Simple and Straightforward: MRTA is simple because it’s only meant to pay your mortgage balance.
Best For:
MRTA is ideal for property investors who want affordable insurance that covers their mortgage loan in the event of death or disability. If your main goal is to ensure the outstanding loan on your investment property is paid off, MRTA provides an economical way to do so.
What is MLTA Insurance?
Mortgage Level Term Assurance (MLTA), unlike MRTA, provides a fixed coverage amount that remains the same throughout the life of the policy. If you die or become totally and permanently disabled, MLTA will pay out a fixed sum assured to your beneficiaries, which may be more than the outstanding mortgage balance at any one time.
Key Features of MLTA Insurance:
- Fixed Coverage: The amount of coverage is the same throughout the policy no matter how much of your mortgage balance is paid off.
- Higher Premiums: MLTA premiums are usually higher than MRTA because the coverage does not decrease over time.
- Flexible Duration: You can decide how much you want to cover and how long you want the policy to be — whether it is the full term of your mortgage or beyond.
- Possible Investment Component: MLTA policies may have an investment or savings component, which means you can use cash value to grow over time.
Best For:
MLTA is ideal for investors who want higher and consistent coverage throughout the life of the policy. It’s also suited for individuals who want more flexibility and the possibility of a policy that could include a savings or investment element. Additionally, MLTA is better if you want a higher sum assured to protect not just your mortgage, but also provide extra financial security for your beneficiaries.
MRTA vs MLTA: Key Differences in a Simple Comparison
| Feature | MRTA | MLTA |
| Coverage Amount | Aligned, and decreases over time, with mortgage balance | The policy that fixed sum assured throughout the policy duration. |
| Premiums | Lower premiums as coverage decreases over time | Fixed coverage amount leads to higher premiums |
| Policy Duration | Matches mortgage loan tenure (usually 10 to 45 years) | Customizable; Flexible according to needs |
| Ideal for | For investors searching for affordable, basic coverage of mortgage balance | Those investors looking for greater coverage and flexibility |
| Additional Features | No investment component, simple and straightforward | There are some policies which have investment or saving component |
| Loan Coverage | link directly to the mortgage balance | It is not tied to the loan balance, it is constant. |
| Claim Benefit | Pays off remaining mortgage balance | Fixed lump sum to beneficiaries |
Which One is Best for Your Investment Property?
You will choose between MRTA and MLTA based on your financial goals and what you want to get out of your insurance coverage. Let’s break down which policy may be best for different types of property investors in Malaysia:
When to Choose MRTA Insurance:
- Affordable Premiums: If you’re looking for an affordable insurance policy that covers your mortgage balance at the lowest possible cost, MRTA is the way to go. It’s a simple, cost-effective solution to ensure your mortgage loan is paid off in case something happens to you.
- Short-Term Coverage Needs: If your primary concern is to secure the mortgage loan, MRTA is perfect, as it directly matches the loan term and reduces the coverage in line with the loan balance.
- Straightforward Protection: MRTA is best if you’re looking for a policy that offers a no-frills, simple structure that focuses on mortgage protection.
When to Choose MLTA Insurance:
- Higher Coverage:MLTA provides a higher fixed sum assured, if you want to make sure your family or beneficiaries are well taken care of after the mortgage loan is covered.
- Long-Term Investment: MLTA might be a better option if you’re looking for long term coverage that could potentially grow in value — particularly if your policy has an investment component.
- Flexibility: MLTA lets you choose the sum assured, duration, and even adds the option to grow your policy value through investment options for flexibility in coverage and duration.
Key Considerations for Investment Property Owners:
- If you’re buying several properties, MLTA may be worth it for that flexibility and higher coverage, especially if you have a large portfolio or want to keep your properties for a while.
- MRTA is often enough and cheap enough to cover the loan for those who are just starting with a single property investment.
Conclusion
Finally, it comes down to whether you want to have MRTA or MLTA, and the amount of coverage you need. Investors looking for the most affordable and simple mortgage protection can choose MRTA. However, MLTA works better for those who would prefer a little more flexibility, greater coverage and even the potential of an investment component that might offer an extra layer of financial security.
If you are an investor in Malaysia, it’s best for you to analyze your property goals, your financial situation and your long term plans before making a decision. MRTA and MLTA are both good plans, but they’re for different reasons, and the one that’s right for you will depend on whether you prefer lower premiums (MRTA) or more flexible coverage (MLTA).
Investing in real estate is risky, and by taking the time to understand these options, you can be sure that your investment property and your financial future are protected.
Learn More About Hidden Cots to Prepare when Buying Auction Properties in Malaysia. Otherwise Check Out HousingWatch’s Blogs For More Useful Information.
