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If you’re taking a home loan to buy a property, chances are: you’ll be required to pay for Mortgage Reducing Term Assurance (MRTA), by the bank as part of your loan arrangement.
What is MRTA?
It is an insurance policy that provides financial protection for property loan borrowers and their families. Specifically, it helps settle outstanding loan amounts in the event of death or total disablement of the borrowers.
Why would you need it?
This home loan life insurance is essentially a protection mechanism for all people with mortgage, and especially for households with sole breadwinners.
Generally, in the event of untimely death or disability of a housing loan borrower (significantly if he or she is the main income earner), the greatest problem facing surviving household members is their ability to pay off the outstanding loan. In many instances, the surviving family members may even need to sell off the property at less-than-competitive price just to pay off the outstanding amount.
By signing up for this insurance, surviving family members will not be left with such burden because it covers part or all of the unpaid portion of a housing loan.
How does one apply for it?
In Malaysia, home loan applicants do not need to go out of their way to find an MRTA provider because it is usually incorporated as part of the mortgage application process. Commonly, you’ll only be required to pay a single premium. You will not need to pay a premium again throughout the entire duration of the policy.
Like any other insurance policies, MRTA has a specific insured amount as well as policy duration. Bear in mind that in the event of death or permanent disability, it would pay off only the amount that is covered, within the time, as dictated by the policy. It does not pay for everything that the insured owes to the bank.
Due to the above reason, home loan applicants are generally advised to purchase this insurance policy based on your specific requirements (instead of just going for the cheapest policies available). For sole income earners, buying maximum coverage is especially recommended despite the heftier premium, because your families are more at risk should anything happen to you. For households with multiple income earners, you may consider opting for a policy with lower coverage.