Mortgage Life Insurance
Mortgage Life Insurances are designed to pay off the
outstanding loan balance in the event that
the borrower dies or suffers from total and
permanent disability (TPD) before the loan
is fully paid off.
Basically there are two types of mortgage life insurance
available in the market. One type is
commonly known as Mortgage Reducing or
Decreasing Term Assurance (MRTA or MDTA) and
the other choice is Mortgage Level Term
Assurance (MLTA).
Mortgage Reducing Term Assurance (MRTA) or Mortgage
Decreasing Term Assurance (MDTA)
MRTA or MDTA is a reducing term life assurance specially
designed to protect a loan borrower against
death or TPD (total permanent disability)
due to natural or accidental causes. Some lenders will allow you to finance and add the premium
to your home loan (up to a certain
percentage of your loan amount).
MRTA or MDTA is a simple insurance policy and has become a
common and acceptable policy taken up by the
borrower whenever he takes up a mortgage
loan. The premium is paid upfront in one
lump sum. Some lenders will finance and add
the premium to your loan. The borrower can
choose the amount and tenure of the coverage
and the amount of premium will be determined
by these factors as well as his age and
gender. Banks normally encourage the
borrower to take up this policy by giving
better pricing on their interest rates if
the borrower signs up a MRTA or MDTA policy.
To the
borrower this is relatively a hassle free, affordable
and necessary policy as their mortgages are
covered in the event of any unfortunate
incident that may caused death or TPD.
Mortgage Level Term
Assurance (MLTA)
MLTA is a slight variation from MRTA or MDTA and offers an
alternative for a borrower who is looking
for a life insurance which offers protection
plus savings and in some policies returns on
the premium.
Premium is paid on a monthly, quarterly, half yearly or
yearly basis and the policy holder can
choose to have a wider coverage other than
death and TPD. The amount of the premium
will be determined by the usual factors and
the scope of additional coverage.
Comparison and Features of MDTA and MLTA
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Life-MLTA
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MRTA
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1. Transferable
This policy is transferable whenever the
borrower buys a new property or refinances his loan with another bank.
Example: Transfer this policy, adjust the sum assured to match the new loan, as many times as you need.
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1. Not Transferable
In most cases, new MDTA policy has to be taken up whenever a
borrower changes his properties or refinances his loan with another bank
Example: 5 yrs later, refinancing at the older age, for same
tenure of same loan amount, the MDTA cost is higher.
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2. Insurability is Guaranteed
You purchase only once, with the same sum assured, there is no need to prove your health condition again.
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2. Insurability is not Guaranteed
Most of the time every time you finance your property, you have to prove that you are healthy to purchase MDTA.
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3. With Savings or Returns (Cash Value)
Premium paid will be accumulated either as savings or savings plus returns. The cash value can be used to reduce or pays off your mortgage.
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3. No Cash Value
It is an expense with zero cash value at end of the mortgage
tenure.
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