Been a property ownership, you need to consider asset risks planning if you buy your property with financing, Here are the two types of insurance to consider.
We discuss a few options for protecting your property assets, and provide guidelines on advantages, disadvantages, and how much coverage is needed.
Why need for property asset risk planning?
Being a wise property owner, you will want to manage asset risk planning to make sure unfortunate events i.e. becomes disabled or passing away have minimal impact on you and your loved ones.
MRTA: Mortgage Reducing Term Assurance
Protection: MRTA gives you protection which reduces over time until it reaches zero. In the past MRTA was often compulsory. Today, you have more flexibility.
Duration: 5 years – 35 years (up to maximum home loan duration)
Cash Value: No
Costs: Approximately RM3,500 for every RM100,000 of protection required
Advantages
MRTA is lower cost in terms of total premium.
MRTA can be bundled together with your home loan.
Disadvantages
MRTA in Malaysia does not have critical illnesses coverage (only death and Total Permanent Disability).
Protection coverage may be insufficient as your protection either ends earlier or your owing amount is higher than the protection you have, especially loan rates increases.
No cash value.
May be an expensive cost for the MRTA if factored into your home loan would approximately double.
Insurability is not guaranteed. You need to prove you are healthy every time you want to purchase a new MRTA.
Advices
Consider other options besides MRTA, focusing on value and not just the total premium costs. Other options such as a MLTA often prove to be better alternative.
If possible, pay off the MRTA separately (not bundled into home loan) as otherwise you will be charged a high amount of interest.
If you are “forced” to take a MRTA by the bank, take the minimal coverage for the minimum period of years (5 years).
MLTA: Mortgage Level Term Assurance
Protection: MLTA offers level or increasing protection.
Duration: As long as you need the coverage.
Cash Value: Yes
Costs: Approximately RM1,200 for every RM100,000 of protection required (per year).
Advantages
MLTA gives you the same or increasing protection over time.
Upon claim, payout goes to you/nominee(s) which you can use at your own choosing including paying part/all of your home loan.
Cash value accumulation which you can withdraw at any time (or upon ending your MLTA).
MLTA is on your life and not tied to a particular property.
Once you decide to sell your property and purchase a new property you can use your same existing MLTA as risk protection for your new property.
Flexibility with protection value which can be adjusted up or down at any time you desire.
You have the option to add on a premium waiver whereby if Total Permanent Disability (TPD) or Critical Illness (CI) occurs, all future premiums are waived.
Disadvantages
MLTA cost more than MRTA in terms of total premium costs.
Advises
Work with a good advisor familiar with MLTA products to structure your asset protection to give you the best combination of value, protection, and cash value.
Inform your nominees (or trustee) on the insurance and instructions on dealing with the property and funds in case of passing/Total Permanent Disability.
Along with my career in life insurance, I have seen many unfortunate incidents happening to my clients. Initially, I was hesitant on asking my customers to pay extra for the entry cost. Mortgage Level Term Assurance or Mortgage Reducing Term Assurance isn’t cheap if you are struggling to get your first house. However, after this incidents, it is my belief to continue in advising customers to take up sufficient coverage.
Think about it:
What happen when you diagnose with critical illness?
Do you still have the same capability to earn income as before?
Do you still want to shoulder all your loan while you diagnose with critical illness?
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