MRTA is the abbreviation of Mortgage
Reducing Term Assurance. For those who don’t know what’s MRTA – it is a
life insurance plan with decreasing sum assured over time, just to cover your
home loan owed to bank.
Normally, this is what happen. After
you buy a house, the mortgage officer will normally ask you to buy a
hassle-free bank MRTA, single premium, and financed into the loan. You only pay
a little bit extra per month, what a fantastic plan!
But are you aware that buying MRTA
may not be able to directly protect your asset and your family?
If you purchase MRTA, the
beneficiary is the bank. If any misfortune happens, the bank get the mortgage
outstanding balance from insurance company (and now the bank is safe).
What happen to your house by now?
Your house will be frozen under the estate, your assets will be utilized to pay
for other liabilities, clearing income taxes (including outstanding and uncleared taxes for the past many years) and settle legal and accounting
expenses. Your family is the LAST party to receive your assets. And in this
process, your beloved family will only receive the asset if your asset value is
greater than liability, otherwise your estate will be declared insolvent
(bankrupt). Your family is forced to leave the house even though the insurance
proceed from MRTA has already been paid out. Isn’t it unfair?
In short, bank MRTA is meant to
protect the bank, you and your family are only being protected Conditionally.
Source http://kclau.com/insurance/mlta-vs-mrta/
