A mortgage is one of a person’s largest debts or loans. Therefore, it is unsurprising that several types of takaful can help settle the loan if something undesirable happens to the borrower.
For example, the borrower’s death or permanent disability prevents them from working or generating further income to settle the remaining loan balance. Thus, takaful or insurance is the best protection for protecting you and your loved ones. How can it protect you and your loved ones?
Before we start comparing MRTT vs MRTA, you should know that there are 4 types of protection for your mortgage:
a. MRTT: Mortgage Reducing Term Takaful
b. MRTA: Mortgage Reducing Term Assurance
c. MLTT: Mortgage Level Term Takaful Assurance
d. MLTA: Mortgage Level Term
In this article, we will explore more on MRTT vs MRTA. To simplify understanding, MRTT and MRTA are a package that seems the same. The only difference is that MRTA is a form of conventional insurance while MRTT is takaful or Islamic.
The key phrase for MRTT and MRTA is R – Reducing. If your housing loan amount decreases, the protection MRTT and MRTA provide will also decrease.
Read: 7 Tips For First-Time Home Buyers
MRTT VS MRTA
MRTT VS MRTA: What Is MRTT?
MRTT, or Mortgage Reducing Term Takaful, is insurance based on Islamic finance principles. MRTT is a takaful (Islamic insurance) product that provides coverage for mortgage payments in the event of death or TPD of the policyholder.
This type of insurance operates on the principle of shared risk, where policyholders collectively pool their resources to protect one another. In the event of a claim, the takaful fund covers the mortgage payments of the policyholder’s family.
MRTT VS MRTA: What Is MRTA?
Conversely, MRTA is a type of insurance that operates on the principle of individual risk. MRTA provides coverage for mortgage payments in the event of the death or TPD of the policyholder.
Unlike MRTT, MRTA is not based on the principles of Islamic finance and operates as a traditional insurance product. In the event of a claim, the insurance company pays the mortgage payments to the policyholder’s family.
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MRTT VS MRTA: The Differences
| Categories/Coverage Type | MRTT | MRTA |
| Pool of funds | Operates on shared risk principle, coverage from takaful fund | Operates on the principle risk, coverage from the insurance company fund |
| Cost of coverage | Cheap | More expensive |
| Amount of coverage | Low | High |
One of the key differences between MRTT and MRTA is how they are structured. MRTT operates on the principles of shared risk, while MRTA operates on the principle of individual risk.
This means that the cost of coverage is determined differently in each case. In MRTT, the cost of coverage is determined based on the collective pool of resources provided by policyholders.
In MRTA, the cost of coverage is determined based on the individual risk of the policyholder.
Another key difference between MRTT and MRTA is the way claims are handled. In MRTT, claims are handled by the takaful operator and are paid from the takaful fund. In MRTA, claims are handled by the insurance company and are paid from the insurance company’s funds.
It all looks the same, but structurally, MRTT is shariah-compliant.
Pros And Cons Of MRTT
One of the main benefits of MRTT is that it operates on the principles of shared risk, which helps to reduce the cost of coverage. Because policyholders collectively pool their resources, the coverage cost is lower than MRTA.
Additionally, MRTT is a takaful product, which means that it is based on the principles of Islamic finance and is therefore considered a more ethical and socially responsible option than MRTA.
However, one of the potential drawbacks of MRTT is that it may not provide as much coverage as MRTA. MRTT operates on the principles of shared risk, which means that the cost of coverage is lower. However, this also means that the coverage is typically lower than MRTA.
Pros And Cons of MRTA
One of the main benefits of MRTA is that it provides more coverage than MRTT. Because MRTA operates on the principle of individual risk, the coverage provided is typically higher than MRTT. Additionally, MRTA is a traditional insurance product that provides higher financial protection than MRTT.
However, one of the potential drawbacks of MRTA is that it is generally more expensive than MRTT. Because MRTA operates on the principle of individual risk, the cost of coverage is determined based on the individual risk of the policyholder, which can result in higher costs compared to MRTT.
Additionally, MRTA is not based on the principles of Islamic finance and may not be considered a socially responsible option for some Muslim consumers.
In conclusion, MRTT and MRTA are two popular insurance products in Malaysia that provide financial coverage for mortgage payments in the event of death or TPD of the policyholder.
Both MRTT and MRTA have their pros and cons. Consumers must consider their needs and circumstances before choosing between these two options.
Hope that you now have a better understanding of MRTT vs MRTA. You should also consider the level of coverage they require, the cost, and the level of financial protection they need before deciding.
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