Bank Promotes Outdated Mortgage Reducing Term Assurance. Why is it so? The bank placed priority on their own interest first instead of the borrower on the housing loan. Too sad, the public willing to accept the bank offer and incorporated as part of the loan amount.
I came across a case in the rural area. It was a heartwrenching story during my course of study CII. By giving and help the need community I enhanced my insurance knowledge.
” Madam, why are selling cookies along the busy main road with 3 three kids in toll.” I inquiries with a sympathetic eye.
“Sir, it is my fate, I have a 4 school going children, besides my bedridden husband. Already 4 months passed, God willingI I hope he can recover soon. According to government specialist there 50% chance of recovery. He fell in the bathroom after coming home from factory working as an operator for the past 18 years.”
She showed me a letter from the bank stating that her husband needs to pay the arrear 3-month installments of housing loan, otherwise, their home for 9 persons will up for auction. She sobbed quietly behind the curtain.
” Does your husband purchase an investment link policy”
” Here it is ”
” It is mortgage reducing term assurance policy!” I advised her.
” How do I know? the bank asked me to pay the installments”
Likewise, it is same as my son case.
After securing my son loan from a bank, the loan officer asked my son to sign the mortgage reducing term loan form.
I asked her” if my son is bedridden, does he has to pay the housing loan installments?”
” Yes, of course” the loan officer replied.
” If my son after settling this loan, he want to have another second house, Does he need to buy another MRTA? ”
” Yes, of course”
The Cons of MRTA
No cash surrender value, no loan.
During you tenure loan period. If you need a small loan to cover your emergency fund due to short-term unemployment or hospitalization. You need 20 000 dollars. One need to present the original investment link policy to the insurance company, you will get the fund with 24 hours during the working day. There is a small interest charge from 7-8% charge for the outstanding loan, but it is not compounding.
Bed-ridden, continue paying installment
Despite out of job due to illness, you still need to pay the installment. Coupling with the higher burden medical fee, no job. Can the borrower continue paying the loan installment?
TPD or Death
Can the survivor suffering TPD and the family living on fresh air and the sunshine? After paying the balance housing loan, you get the title out from the bank without any encumbrance. No cash in hand, eat bread and drink plain water? In the investment link policy, after paying for 15 years, and the housing loan balance let say 50,000 for another 5 years. If you are insured for 200,000 plus 15 years on dividend amounting to 96,000.00 The surviving family will get (200,000 + 96,000-50,000=246,000. In the case of MRTA, you only a title of the house for free staying, enjoying the fresh air and the sunshine.
The silent killer, since the whole premium at the inception date which is rather huge, in order not to add burden to the borrower. The bank sheds the crocodile tears by incorporated part of the loan installment. Another interest is added.
Buying a 2nd home
MRTA is not transferable, you need to have another policy for the 2nd housing loan. As one aged, the premium will be higher, even worse, whether you are insurable or not due to ill health. With the investment link policy, you need not buy another policy but a smaller amount of sun insured unless the 1st policy is insufficient to cover the 2nd home loan.
Unless the insured die of critical illness or natural death, the MRTA will response. If you are suffering from 36 major critical illness for e.g cancer, you still have to serve your housing loan.
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