A job loss often happens without warning, leaving you scrambling to find money to pay bills such as your mortgage. Some lenders and home builders now offer job-loss insurance that pays all or part of your monthly mortgage payment for a limited time.
Examples of national and local organizations that offer these plans include:
Mortgage Payment Protection in Heathrow, Fla., is one of the companies helping lenders, builders and others provide job-loss protection. Through its Mortgage Guardian program, Mortgage Payment Protection acts as a broker for lenders, mortgage bankers, private mortgage insurance (PMI) companies and builders looking for job-loss insurance policies from three top-rated insurance companies.
Lenders, builders and other enrollees in the program pay a one-time, per-loan premium of $200 or more, depending on the level and term of coverage. Mortgage Guardian payments go directly to the loan servicer, not the homeowner, according to Teri Cooper, executive vice president of Mortgage Payment Protection, Inc. in Heathrow, Fla.
"The cost of the premiums cannot be passed on to the consumer, but must be paid from the proceeds of the loan at origination," Cooper says.
Unlike the companies associated with the Mortgage Guardian program, Bank of America provides its own financial backing for its Borrowers Protection Plan (BPP).
Matthew Menz, a mortgage protection executive for Bank of America, says the program is available only for purchase mortgages (not refinance mortgages) and is limited to loans of $500,000 or less. The BPP program covers involuntary job loss along with disability, hospitalization and loss of life.
The program is free for the first year if you are covering one borrower on the loan. After that, the charge is 7.5 percent of the monthly principal and interest, which will be billed with the monthly mortgage payment.
"Customers can cancel at any time, although they can only sign up for the plan when the loan is originated," Menz says.
Bank of America customers who want joint protection in case of job loss by two borrowers must pay 3 percent of the monthly principal and interest per month for the first year, followed by 10.5 percent for subsequent years.
Job-loss insurance often comes with exclusions and limitations. For example, to qualify for a job-loss protection policy issued through Mortgage Payment Protection's Mortgage Guardian program, the following must be true of you:
Mortgage Guardian also requires a 60-day waiting period after the loan closes, followed by a 30-day waiting period after the date of unemployment.
Michael Barry, a spokesperson for the Insurance Information Institute, says it's important to keep these limitations and exclusions in mind when weighing the value of job-loss insurance.
"Read the policy with an eye toward the terms of agreement, what's covered and for what time limit," he says. "Other types of insurance are clearly spelled out, such as auto and home insurance, but this insurance is much more complex."