Additional reporting by Gina Pogol
If you lost your job today, how many more months would you be able to pay your mortgage? If you're like the average American, the answer is, "not many." Recent CNN reports present some alarming statistics:
- 76 percent of Americans live paycheck-to-paycheck
- 62 percent have $1,000 or less in savings
- 27 percent have no savings account at all
If losing your job could cost you your home, learn about insurance coverage that could help you avoid financial disaster. These products include job loss mortgage insurance, supplemental unemployment insurance, disability coverage and life insurance. Not everyone qualifies for job loss coverage, and it's not widely available, but there are several options for you if your emergency savings is insufficient and you find yourself unemployed.
How job loss mortgage insurance works
Job loss mortgage insurance is designed to do one thing--keep you from losing your home if you lose your job. Typically, if your job loss is covered (see below), your insurer takes care of your monthly mortgage obligation for you. There are policy limits--a maximum monthly amount, and a maximum number of months that your mortgage will be paid while you are unemployed.
Qualifying for job loss mortgage benefits
Not everyone is eligible for job loss mortgage coverage and many people prefer other insurance products over this type of coverage. You probably won't qualify for this insurance if you are:
- Currently unemployed
- Working on a temporary or contract basis
- In the military full-time
- Under 18 or over 60 years old
Not every type of job loss is covered. You may not be eligible for benefits if your job termination doesn't meet the insurer's definition of "involuntary."
The following circumstances won't usually be considered "involuntary" by insurers:
Job loss mortgage insurance disqualifications
- You quit your job
- You were fired for cause
- Your contract expired
- You stopped working for medical reasons
- You stopped working because of pregnancy or other family-related reasons
- You stopped because of a normal, seasonal break in employment (think: ski instructor during the summer)
If you're a union member, you may or may not qualify for benefits in the event of a strike--that's in the insurance policy fine print and may vary by company. You may also not qualify if you lose your job during the first 30-to-60 days your policy is in force--most insurers impose this waiting period to prevent losses from homeowners who purchase insurance only because they think they're about to be laid off.
Finding a job loss mortgage policy
When you buy a home, you're likely to be inundated with solicitations from job loss mortgage insurance companies. These offerings can range from useful to "garbage," according to experts at Nolo.com.
Mortgage insurance for job loss has become much less popular since the Great Recession ended, so finding it may be a challenge. Your best bet for obtaining coverage is with a reputable insurer, perhaps the one that provides your homeowner's policy, or the one insuring your mortgage. Another option that may be cheaper and offer more flexibility is supplemental unemployment insurance or one of the other alternatives described below.
Determining the best job loss protection policy
When it comes to job loss protection, the premium doesn't necessarily reflect the value of the benefit. One company may offer a sizable monthly benefit and cover long-term job loss as well as disability. . Another more expensive policy may not even offer enough coverage to pay your entire monthly mortgage payment, and it might only be paid for a few months. When you compare job loss mortgage insurance policies, go through the fine print and note:
- Premium amount
- Mandatory waiting period
- Maximum monthly benefit
- Number of months your mortgage will be paid
- Additional disability or life insurance benefits, if any
Job loss insurance cost
Mortgage payment protection insurance can be hard to buy, because many providers have discontinued it. The market is highly fragmented, but, in general, this insurance costs more than comparable life or disability policies.
3 no cost job loss insurance sources
1. Home builders and home sellers
The Great Recession sparked this trend among motivated home sellers, builders and real estate firms. Mortgage payment protection was sometimes offered to buyers who purchased their homes. While a few continue to offer this benefit, this incentive has become quite rare in the U.S. Builders
2. Mortgage insurers
Mortgage borrowers who put less than 20 percent down may find that job loss protection is included in their mortgage insurance premiums. For example, mortgage insurer Radian Guaranty includes job loss protection for the first two years of mortgages exceeding 95 percent of the home value -- up to $1,500 per month with a maximum benefit of $9,000. Even without this extra coverage, however, your mortgage insurer may protect itself by temporarily paying your mortgage to avoid a foreclosure loss. This is called a "claim advance."
3. Mortgage lenders
Mortgage lenders may include payment protection with their financing, or they may sell it as an add-on. Colonial National, for example, sells a policy that provides up to two years of payments if you become disabled. If this is important to you, ask your mortgage lender or broker about job loss mortgage coverage before committing to a home loan.
Note that "free" coverage may be more limited than you wish, so read the fine print as though you are paying for it--because, in a way, you are.
Alternatives to job loss mortgage insurance
You don't necessarily need a special insurance policy to get help with your home loan if tragedy strikes. In fact, many experts believe that job loss mortgage payment protection coverage is more expensive and less transparent than other types of insurance. Its main advantage is that consumers who don't qualify for life or disability coverage, due to health or other concerns, can sometimes be approved for job loss mortgage insurance. Here are other alternatives:
- Disability (benefit can be used for anything, including mortgage payments, if you can't work)
- Supplemental unemployment insurance (pays monthly benefits that can be used for any purpose, including your mortgage)
- Life insurance (benefit can pay off mortgage if you die)
- Business interruption insurance (coverage for self-employed business owners)
- Claim advance (private mortgage insurer, the FHA or VA may pay your mortgage to prevent foreclosure loss)
Note: Supplemental unemployment insurance policies cost about one percent of your annual salary per year. If you earn $60,000 per year, your policy would come to about $50 per month.
If you have sufficient savings to cover your expenses for two-to-six months, as personal experts recommend, you may not need job loss protection for your mortgage. If an income interruption would leave you homeless, though, this safety net is worth pursuing.