It’s never too early to think about insurance, no matter what kind it may be! That’s certainly true when it comes to coverage for something as valuable as property.
But MRTT and MLTT aren’t so much about covering the property – it’s about covering you and your loved ones too. What do these two terms mean, though?
Mortgage Reducing Term Takaful (MRTT) and Mortgage Level Term Takaful (MRTT) are both Takaful insurance products, that cover you in the event of either serious disability or death.
As Takaful insurance products, they offer a halal foundation for insurance that can be crucial in caring for loved ones, and covering their financial needs under challenging circumstances.
So let’s look at the topic of MRTT vs MLTT, what are the differences, and just why they can be such an essential consideration in your property journey.
What Is MRTT?
Mortgage Reducing Term Takaful (MRTT) is a Takaful insurance product that’s designed to provide financial support in the case of total permanent disability (TPD) or death.
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MRTT insurance is essentially a financial security that covers the value of your home loan at any given point of its term.
That means as your home loan amount reduces, so too does the cover which MRTT provides – hence, the ‘mortgage reducing’ in the MRTT meaning.
The payment of the Takaful insurance fee is made as one lump sum upfront at the time of purchase, and can normally be fully or partially funded by the mortgage/home loan.
In the case of death, MRTT is designed to cover the outstanding amount of your home loan, which is paid directly to the financial institution which holds the loan.
That means financial stability and peace of mind are guaranteed for your loved ones during extremely difficult times.
MRTT also covers total permanent disability (TPD), providing an essential financial safety net in the event of unforeseen circumstances, that leave the covered individual permanently disabled and unable to work.
If the home loan is paid off early, providers will usually offer a cash refund, based on the early termination terms and conditions.
MRTT has a defined term, which should be based on the term of your home loan. That makes sense when you think about it – since covering that home loan debt is the ultimate goal of MRTT.
Ensuring that this term and decreasing sum matches that of your home loan is an important part of setting up any such insurance.
There’s no point in having a home loan worth RM500,000 and only a RM20,000 worth of insurance to cover it!
On the other side of that equation, there’s little point paying for RM500,000 worth of insurance, if only RM20,000 home loan will be outstanding and covered in the event of your death.
What Is MLTT?
Mortgage Level Term Takaful (MLTT) is also designed to provide essential financial assurance for your family, in the event of death or permanent disability.
However, the sum covered under MLTT remains level throughout the period of the plan – hence ‘level term Takaful’.
In the event of death or total permanent disability, MLTT will pay the remaining balance of your home loan directly to the bank.
The balance of any remaining sum covered will be paid directly to the beneficiary.
That means MLTT doesn’t just cover the essential value of a home loan, but can also provide an additional financial lump sum to your family or loved ones.
Unlike MRTT, the MLTT is financed by ongoing payments made throughout the term of the plan.
As a result, it cannot be covered by a home loan in the way MRTT can be, and is instead paid by the individual in regular instalments.
Since the value paid out at any point of the MLTT will stay the same, the overall cost of premiums is likely to be more expensive than a similar length of cover for MRTT as a result!
The Pros And Cons Of MLTT vs MRTT
The most essential part of any insurance is making sure it fits your needs. That’s vitally important for something as critical as covering your family at the time of greatest need.
You should seek financial advice if you’re in any doubt about which product is right for you.
Remember too that MLTT and MRTT are terms which cover a wide range of products from a number of institutions.
The terms and conditions of each particular product might vary. The definition of TPD for example could be notably different between two products.
It’s also worth pointing out that the cost, available length of cover, and even the ability to be granted cover can vary depending on your own circumstances.
If you’re an 18-year-old fitness fanatic taking out a 20-year MRTT, you’re likely to be paying a lower price premium than a 58-year-old smoker who thinks salad is something that pollutes a tasty burger.
So with all that in mind, what are the particular pros and cons of the two types of insurance? Check out our quick reference guide below:
Covers
Death and Total Permanent Disability.
Death and Total Permanent Disability.
Sum Covered
Decreases over the term of insurance.
Remains the same during term of insurance.
Premium Payment
Covered in single lump sum upfront.
Paid in ongoing installments.
Pays To
Bank or financial institution holding the home loan.
Pays balance of home loan to bank or financial institution holding home loan.
+
Pays remaining balance lump sum to beneficiaries.
Cost
Single lump sum, can be covered in mortgage. Reflects decreasing value of payout.
Relatively higher long-term cost as covering a fixed sum assured, covered by payer in installments.
Now that we’ve got the two policies covered… what about MRTA? What does it mean? And what are the pros and cons of MRTT vs MRTA.
The Question Of MRTT vs MRTA
At this stage you might be wondering what’s the difference between MRTT vs MRTA? That’s completely understandable – and thankfully the answer is too!
MRTA stands for ‘Mortgage Reducing Term Assurance’. Like MRTT, MRTA is designed to help you cover the home loan payment you owe to your bank in cases of misfortune. Its coverage sum also decreases over the term of your loan, as time passes by.
And MRTA, just like MRTT, provides for the bank providing your home loan in case the sudden life difficulties you face stops your ability to repay the loan.
But while it sounds a little similar to MRTT at one glance, it is slightly different. How so? You see, MRTT is the Takaful version of MRTA.
It covers a reducing sum on a home loan throughout the plan, BUT based on the understandings of Islamic finance principles that avoid interest-based transactions.
MRTA is not to be confused with MLTA, which stands for ‘Mortgage Level Term Insurance’. It differs slightly from MRTA, in that it offers the option of savings and sometimes returns (cash value) for the premium, on top of a life insurance plan.
Unlike MRTA (or even MRTT for that matter), MLTA’s beneficiary can also be a mortgage insurance agent or broker outside the banking institution.
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Note: The same ‘Islamic vs non-Islamic’ dynamic rings true of the comparison of MLTT vs MLTA. MLTT is a simply Takaful (Islamic) version of the same type of level term cover.
The common ground that these four mortgage insurance plans share: they are all mortgage life insurance products that provide assurance in the event of death or total permanent disability.
Why It’s So Important To Get Mortgage Life Insurance
It should be clear from the discussion above why MLTT and MRTT are such important products.
They provide a valuable safety net for your loved ones that can be essential in the event that a successful claim is made.
Let’s face it – home loans are likely to be the most significant debt that most of us occur in our lifetimes.
That debt is almost certainly based on the financial circumstances of one or two key individuals. If something unforeseen and unfortunate happens, those circumstances can radically change.
Trying to deal with such a substantial debt in a difficult time can be a daunting prospect. That’s where a mortgage life insurance policy comes into play.
Mortgage life insurance is designed to provide you some peace of mind when it comes to tackling these financial needs. It’s also designed to reduce the burden if the worst does happen.
Takaful insurance such as MLTT and MRTT provide two financial products which can help cover that need for both Islamiac and non-Islamic property owners.
Looking for more insight on mortgage life insurance to cover your home loan needs? Find out the difference between MRTA vs MLTA with our handy guide.
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