To be frank when I see these three words (mortgage unemployment insurance) together, I just don’t see the connection, but you learn something new every day. Over the weekend I read that it may take seven years until we create enough jobs to get back to the level we were at prior to the meltdown in 2008. That being the case, job security is the name of the game. Am I wrong?
So if you think you might be unemployed and looking for a new job, you might consider unemployment mortgage insurance. This is even more important if you want to avoid bankruptcy and foreclosure.
What is unemployment mortgage insurance?
It’s coverage that will pay your mortgage in case you lose your job. You collect if you are laid off or fired without cause. If you quit, retire or get sacked for misconduct, you can’t collect. Also, you can’t collect if you are self-employed.
What happens if I buy the coverage and then lose my job?
There will be a waiting period, usually 30 to 60 days. You have to wait for that period to expire before you collect. At that point, the insurance company starts sending payments directly to your mortgage company while you sit at home watching Jerry Springer on TV – or go out looking for a new job.
How do I buy this coverage?
There are a few ways to buy this insurance. Most people who buy this get a rider on their existing homeowner’s policy. That’s probably going to be your best bet. However, some home builders now offer these policies in an effort to stimulate sales.
What’s the catch?
First, each policy is different, but they typically only pay the minimum amount required to keep your home out of foreclosure. Also, some policies are limited and only pay benefits for six months.
If your job is on the rocks, it might be a good thing to look into. The cost is probably not high. While this is not a replacement for life insurance, the risk of losing your job is much higher than losing your life. For that reason, I think it’s more important to consider – especially when you compare it to mortgage life insurance.
Innovative use of mortgage unemployment insurance:
If you’re trying to sell your house but all the buyers are afraid of losing their jobs, why not offer to pay for a year or two of this protection? That way they may feel more inclined to sign on the bottom line.
Do you own mortgage unemployment insurance? Why or why not?
I have worked for a church for 10 years. Churches are not permitted to pay into Unemployment Benefits therefore, employees cannot apply for Unemployment. I know the church will be closing in about 8 months. If I find a company that offers this insurance, how will I prove I am unemployed since I will not qualify for Unemployment Benefits. When we church workers lose our jobs, we have to walk away with nothing. I really need this insurance. I have also been searching for a company that offers it with no luck. Any help would be appreciated.
Neal Frankle, CFP ® says
P – I am confused. You tried to get private insurance and nobody will sell it to you? There may be a clause that precludes it because you know that you are going to be laid off. But this coverage is private so the fact that you work for a church should not effect you . Could you provide more information. Thanks.
Hello P. Simon, I was wondering how things ended up? What did you do after leaving the church?
Healing Enso says
I’m a consultant and I can’t live without it. I almost always had a period of 4-6 months between contracts (my technical skillset is reasonably obscure).
Unfortunately, my last policy had a term cap – they paid around a year’s payments (over 3-4 different unemployment periods) and that was the end of the policy. Now I’m looking again for a new policy – 4 years left on the mortgage, up to a year in insurance – for about $100 a month. I have got to have it.
Enso, what about the ethical issues? do you feel ok about doing that? thanks
Has anyone heard of negative impacts to credit/score/rating by the act of submitting a claim due to a layoff?
We’ve all heard of insurance companies who drop folks after their first claim… wondering if there can be impacts down the road. A friend has the insurance, been paying the premiums.. now a bit hesitant to activate.
Can you give me a list of companies that sell a mortgage unemployment insurance policy?
Neal Frankle says
Have you tried to Google this?
I have, and I cant find mention of a single company that provides this kind of coverage for someone who already has a mortgage (not through BOA), so that list would be helpful if anyone has it…
Buzz Windrip says
I both have had and used this insurance. Bank of America gave us 12 months free disability, death and unemployment insurrance when we refinanced in 2009. After the year trial the cost monthly was about 6% of our monthly payment, not very high.
I changed jobs later that year, and in late 2010 the company reorganized and I was going to be out of a job. So i filed a claim and collected the mortgage insurance while I was collecting unemployment insurance. It was the best investment we ever made. Some things to consider:
1. It is tied to your unemployment insurance– you have to file and then submit proof that you are enrolled and collecting for the mortgage insurance to kick in. Also, if you supplement your UE benefits with part-time or contract work it won’t cover you during that period. So if you file only two weekly claims in a particular month because you had temporary or contract/consulting work, then the mortgage insurance does the same since you have to submit proof of UE compensation every month (easy to do, you just fax your check stubs down with a form).
2. Be prepared to submit ample proof that you’ve been laid-off, downsized, etc. It is a bit more stringent that filing for UE in some cases.
3. It does not pay your entire mortgage. We had a small home equity loan that was not covered. But it covered most of the monthly payment.
4. It is a one-shot deal. I used up 6 months of it, which means I only have 6 left should I find myself in the same position. It does not reset with a new claim. Only way to start again is either re-fi or with another lender offering similar protection. However, I still have a full year of disability and/or death mortgage insurance left on the same policy. But since that’s less likely than unemployment, continuing to carry this coverage without the full year benefit is less of a deal.
5. Unlike UE benefits, it is not taxable since it is insurance compensation (same as disability).
Overall, the experience was good and none of the requirements were too onerous. Bottom line is that we got through a mercifully short period of unemployment without dipping into our savings, and that would not have been possible if I hadn’t carried this coverage.
I am interested in purchasing this type of insurance but the bad part about it I am unable to locate companies and phone numbers that offer this service. Can you please provide companies and phone numbers?
Neal Frankle says
Sadly….I don’t. Have you tried looking them up on Google?
Hi, i am currently not named on my husbands mortgage. Would i have to be named before i can take out mortgage protection insurance?
This is a very good question. I have no idea — probably best to inquire with insurance agent. Let us know if you find out please.
Jennifer Barry says
Hi Neal, we don’t have this insurance because we don’t own a house. We decided to sell ours in 2006 and have been renting ever since.
Even if we did own one, we would probably skip it for 3 reasons. a) My husband’s software skills are in high demand. b) We have a very large savings cushion. c) Companies often put in loopholes to avoid paying out on policies so you have to read them very carefully. We were cheated on an extended warranty once.
@bankruptcy – You have a great point about systemic risk!
Wow I have never heard of this type of policy. I am curious how much it would cost? Do you have any idea on numbers? What kind of underwriting do they do?
Neal@Wealth Pilgrim says
Its a rider on homeowners policies. Not sure how much it is but I’m thinking it’s not too much.
I hope you don’t need the coverage though!
Neal@Wealth Pilgrim says
Bankruptcy…..very interesting comment.
You bring up an excellent point. Insurance companies are in the business of trading risk for dollars. But having said that, your comment makes me think about the consequences (to all of us) of another insurance scheme that blows up.