Unemployment Mortgage Protection Insurance: Job Loss Payments Cover Some But Not All Home Buyers

Tracy Suttles
Jul 26, 2017 · 4 min read

The following is a post from Natural Resources Management president and successful real estate developer Tracy Suttles. Tracy resides and operates business in Texas and all over the Midwest.

Unemployment mortgage protection insurance can seem an attractive offering to home buyers in an unstable economy. When the chance of being laid off and losing a job is very real, a home buyer may worry about the risk of taking out a mortgage loan, then not being able to make payments on time and losing the home. While mortgage payment protection against job loss can ease a buyer’s mind, because of strict eligibility requirements and more, it may not be the answer for everyone.

Difference Between Unemployment Mortgage Protection Coverage and Mortgage Insurance

These types of coverage are not identical, though they may be complementary. The main difference between them is who is protected. Mortgage insurance is generally designed to protect lenders — who are the recipient of the payments even when the premiums are paid by home buyers — from borrowers’ defaulting on loans.

Job loss mortgage protection, on the other hand, is largely designed to protect the buyer. It benefits lenders indirectly, however, in that it lends some stability to an erratic mortgage market and serves to encourage home buying in possibly hesitant first-time buyers.

Benefits of Unemployment Mortgage Protection

Job loss mortgage payment protection is of benefit to lenders in stimulating home buying and protecting mortgages. Primarily, though, it’s a solution for borrowers. Some advantages of this type of coverage for qualified home buyers include:

  • Job loss mortgage insurance can cover the full or partial amount of a borrower’s house payment in the event of an involuntary layoff or other qualified employment loss for extended periods of time.
  • Sometimes coverage may include disability.
  • Some job loss policies cover not only mortgage payments, but other bills and living expenses as well.
  • These unemployment mortgage insurance policies generally allow annual renewals and cancellation of coverage.
  • Some policies are offered to buyers along with a new (first) mortgage contract, others to people with existing mortgages.
  • Many different agents may sell coverage. Job loss protection for mortgage payments may be offered by lenders, house sellers, real estate brokers and associations, building companies, even state housing agencies (such as the California HomeOpener’s program, which offers job loss mortgage protection free as part of the regular primary mortgage insurance.)

The “Fine Print” of Unemployment Mortgage Protection Insurance

Insurance always comes with fine print, and mortgage payment insurance is no exception. Home buyers should read the contract of the job loss insurance plan in detail to see if any of the following apply and evaluate their financial impact:

  • Coverage is generally limited to those who lose their jobs involuntarily through being laid off. Only very occasionally does job loss insurance cover a person being fired from a job or quitting a job.
  • Payment periods vary. Some mortgage protection plans extend to cover six months of payments maximum, while others cover up to one year. The period over which these payments can be made also has limitations, varying from months to years.
  • Lenders may only offer the option of mortgage payment protection for buyers who become unemployed within two years of buying the home.
  • Payment amounts vary depending on loan size and plan. Though some do, not all payments cover the entire mortgage payment amount. Find out exactly what percentage is covered or the flat rate amount the plan pays. What is covered also varies — principle and interest usually are, while flood insurance or other costs may not be.
  • Coverage for unemployment mortgage protection may be limited to first time home buyers in some plans.
  • Many plans restrict protection to regular full time workers (at least 30 hours per week) between 18 and 60 years of age and exclude those who are not eligible to receive unemployment compensation and individuals who work part time (as defined by the plan), are not self employed, work for a relative, work on a temporary basis, are contract workers, or are seasonal workers.
  • A work outage due to a job strike may or may not be covered by the plan.
  • There may be a delay (“vesting period”) before coverage begins, varying from one or two months to as long as six months.
  • Eligibility for particular protection plans is sometimes limited to those already conducting business with the lending institution or associated entities.
  • Applicants for unemployment mortgage protection must disclose to the insurer whether they know if their employer has any plans to lay off employees. If the insurance company deems the risk of insuring the applicant is too high, the application may be rejected. An applicant whose job currently seems secure — for example, not at high risk for a layoff — is one who is most likely to qualify.

A Solution to Some But Not All Mortgage Payment Problems

Unemployment income protection insurance that covers mortgage payments is one solution to the problem of uncertainty during an economically turbulent time. It generally helps borrowers in the first years after a mortgage. Most likely to be eligible are full time employees not at great risk for losing their jobs. Depending on the policy, coverage may be limited, and the fine print should be read in detail, as with all insurance policies.

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