My Biggest Mistake about MRTA

I believe most of you have seen the graph on above before, showing the major difference between MRTA and MLTA in term of the sum assured. No issue on this right?

“If the MRTA fees for 30 years is too expensive, no worry, it’s flexible, we can adjust it to 15 years or even shorter period for cheaper premium.”

Have you experienced this before? Sound familiar right?

Ok, we go straight to the point: If you have shorten the coverage period to 15 years from 30 years, how much do you think the insurance company will fork out to settle your loan if you die at 13th years (refer to green line)?

Before this, I was misunderstood that the coverage will follow the blue line, which means my total outstanding loan will be covered, as per “Y” figure.

But, I’m wrong! It actually covers a very minimum amount as what you can see from the graph, the “X” figure. The sum assured is even lower, almost nothing, if something goes ‘wrong’ with you in 15th years. You get my point?

So, what’s wrong with MRTA? Nothing wrong with it, it’s about understand the concept correctly, because buying MRTA is part of financial planning for 10 to 30 years in advance.

The only thing I feel unhappy is, none of the mortgage officers I have met explain about it to me when they propose to shorten the coverage period. And of course my own mistake, too, for doing insufficient homework.

P/S: I was explained by an insurance agent, my cousin, this is how MRTA actually works as abovementioned. However, need to get more supporting evidence in black and white clarification from banks and insurance companies. Let’s find out the fact together. Welcome to share your knowledge here!

15 thoughts on “My Biggest Mistake about MRTA”

  1. SM

    u will get the coverage table of you MRTA policy. from there u can see how much coverage for each specific years. happened to me too since i requested MRTA = 5yrs just to cover my lockin period coz i planned to refinance. and i have same understanding as you too during that time. until i receive the copy of policy and its too late.

    • Horlic Lim

      SM, that’s why I hope more people aware about this…TQ for your sharing here.

  2. ChampDog

    Isn’t that this depends on how long your loan is? E.g. if the loan is 15 years, then I think it make sense that have MRTA to cover until that point. The sum assured is less because your outstanding loan at that point should be less too. So, technically you’re still covered.

    • Horlic Lim

      ChampDog, you are right, it depends on how long is the loan is. I was talking about RM500,000 loan for 30 years tenure but buying MRTA to cover for 15 years only.

      Let’s say the person die one month (14th year 11th month) before the MRTA expired, the sum assured may be leftover about couple hundred ringgit only as it reducing from starting RM500K to RM0 at the end of the 15 years.

      But, the oustanding loan (on 156th month or 13 years) still remaining about RM360K.

      Conclusion, few hundred ringgit is definitely not enough to cover oustanding loan RM360K. My important message here is, as long as you are aware about this, then it’s fine, because it’s within your plan.

  3. Knowthymoney

    I agree with ChampDog. It is kinda of common sense. As you near the end of the loan, the coverage is “lesser” as you almost finish paying off the property.

    E.g So it does not make sense if you drop dead on the 13th year and you will get like RM400K (point Y) when the remaining loan is , lets say RM50K. MRTA is not there for you to “earn” money per se, it is just protection.

    On the other hand, life insurance is where you “earn money” lol, provided you drop dead young and have high protection..

    • Horlic Lim

      As explained to ChampDog on above… I was talking about RM500,000 loan for 30 years tenure but buying MRTA to cover for 15 years only.

      On 13th year, the outstanding loan is RM360K, not RM50K…

      Totally agree with you, insurance is for protection, not to “earn money”.

  4. LCF Personal Finance

    Horlic, this sharing on MRTA is epic. Just shared this analysis in my FB page too. Thank you very much for the awareness!

    • Horlic Lim

      LCF, you are welcome!

  5. jessy

    i’m agree you all discussed about MRTA and MLTA.but don’t forget every year BLR also different.if BLR increase and the people still buying MRTA, after the loan tenure years end there still have outstanding balance not pay yet everybody need check out the BLR every year.But at least MLTA still can get back money after the loan tenure years,cover the outstanding balance if chose BLR rate.

  6. Shank

    And to add on, MRTA is not transferable! assuming you bought a MRTA to cover a 300k housing loan, for 30 years. and at the 10th year, you sold the the house and buying a new house for 500k, you have to buy a brand new mrta then. Why loose out by buying MRTA when you can do it with Life insurance products according to your affordability as you can just purchase a new 200k cover via Life insurance and continue to service your new 500k loan.

    And MRTA does not cover Critical illness..For me, MRTA is just expensive and you loose out in the process, but again it depends how are you planning your financial. As long you know what you doing, just dont get caught off guard.

  7. LivingT

    Shank, you have a point, but I must add that people generally buy a house first then sell it (because they won’t have a place to live if it’s the other way around), in which case one will still need to get a new insurance or MRTA for the new house, since you can’t transfer the old MLTA over yet, as long as the old house’s loan is still being serviced!

  8. Joseph

    I’m 40 this year and MRTA is not cheap. I’m quite lucky recently in my housing loan application cos I apply to refinance using service and the Customer Service personnel explained exactly everything you said!

    But Loanstreet also explain that most banks if you don’t take their MRTA package will not give you the best interest rate. I didn’t want protection, but the customer Service told me I could take minimum tenure and a smaller sum assured to get best interest rate on my housing refinance. I took their advice.

    I’m quite happy with my new knowledge. And now I can confirm Loanstreet didn’t bullshit me bcos your post. Another article on MRTA

    Thanks for sharing!

    • Horlic Lim

      Perhaps all my loans are in very small amount, that’s why never expect to bargain with bank for better interest rate if i buy MRTA from them. Anyway, will try my luck next time, thanks for sharing!

  9. Syira

    oh my…none of the loan officers explain this to me…When i got my certificate, i was wondering why my MRTA is just 15 years and my financing is for 32 years. After reading this i understand. thank you for sharing.

  10. Ibrahim

    I know for sure that there is an islamic version of mrta that is call mrtt. Is there any islamic version of mlta?