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I read that certain banks require their customers to take up a mortgage-reducing term assurance (MRTA) or mortgage-level term assurance (MLTA) for their housing loans. However, neither MRTA nor MLTA was compulsory for me when I applied for my housing loan, which has been approved. I am single and have sufficient life insurance coverage, which can be used to pay up my housing loan if I were to pass away prematurely. The house can form part of my estate. Do I still need an MRTA or MLTA? Which do I go for? Is an MLTA superior to an MRTA? ?Buggy, via email

Answer by Lawrence Seow, head of financial planning at VKA Wealth Planners Sdn Bhd:

An MLTA or MRTA is used to pay up a housing loan if the policyholder/borrower passes away or is totally disabled. It will ease the financial burden of the next of kin. But what would happen if you became disabled? Would you have enough money to pay for your daily care and bills? You won’t be able to sell the property quickly without incurring losses and might have to wait up to six months to receive the sale proceeds. Don’t forget that you would have to pay stamp duty and real property gains tax.

Since you are single, leaving behind aging parents would be a main concern; therefore it is necessary to ensure that they are cared for when you are not around. Thus, you should consider getting cover just for your loan.

As for MRTA or MLTA, the latter of course is superior because being level term, you will always be claiming the agreed sum even when the loan has been reduced.

In other words, with MLTA, you will still have the excess money (insured sum ­– loan amount) if you are disabled 10 years down the road or after you have paid off the loan.

With the MRTA, because of its reducing-term features, after you have set off the loan, there will not be any excess available. Note that premiums for the MLTA are higher.

Source : The Edge Malaysia

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