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Should you buy job-loss mortgage insurance?

There's nothing like signing a mortgage to make the heart beat anxiously. You make a long-term commitment to pay a debt, not knowing whether you'll always have a job. What if you get laid off?


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That's where job-loss mortgage insurance fits in. A few companies offer insurance policies that pay all or part of the monthly mortgage payment if the homeowner loses a job.

Mortgage unemployment insurance has been around for years. For a long time, the companies that offered it were small and didn't market aggressively to the public. That state of affairs is changing as bigger, better-known companies move in. Bank of America began offering mortgage unemployment insurance last year to its borrowers. GE Casualty, an affiliate of one of the nation's biggest mortgage insurance companies, recently began to offer job-loss policies.

The smaller companies are still in the game, signing up customers through other mortgage-related businesses.

How it works
Job-loss mortgage insurance policies pay all or part of a mortgage payment if the borrower involuntarily loses a job. Some pay if the borrower becomes disabled. Policies vary on how many mortgage payments they will make over a certain period. Many policies will make six months' worth of payments during a 12-month period. Policies begin paying after a specified period of unemployment, usually 30 days.

The policies have other qualifications and caveats. Most have maximum monthly benefits, so if you have a $3,000 monthly mortgage payment, you might not be able to find a policy that will pay all of it. Some pay only principal and interest; others pay principal, interest, taxes and hazard insurance.

Generally, the policies don't pay benefits if the borrower becomes unemployed within six months of getting the policy. That prevents people from buying a policy when they know they'll be laid off soon. Some policies will refund premiums to people who lose their jobs during the six-month vesting period.

Members of labor unions should ask whether the policies pay in the event of a strike. Some do. Some policies pay benefits only to people collecting unemployment benefits. Generally, the policies aren't available to the self-employed or to seasonal or temporary workers.

Customers can renew these policies annually or cancel coverage. In this way, these policies differ from single-premium credit insurance, a type of product that that increasingly has come under scrutiny by opponents of predatory lending. Single-premium policies have a one-time, upfront payment, usually financed as part of the loan. Regulators and consumer advocates have been pressuring lenders to stop selling single-premium credit insurance, and companies have responded by offering policies that are renewable annually.

Financial advisers tend to question the value of job-loss mortgage insurance, pointing out that it's wiser to save at least six months' worth of expenses in a rainy-day fund. It's not that simple for many first-time home buyers, who deplete their savings to meet the down payment and closing costs.

"Typical borrowing customers are young, when a disability or job loss are most likely to interrupt their ability to maintain financial stability for themselves and their families," Bank of America executive Catherine Kenworthy said in a speech this summer. She said one-quarter of Bank of America's mortgage customers bought job-loss coverage in the first six months the insurance was offered.

Borrowers have several choices of coverage, and pricing varies depending on loan size and type of coverage. Coverage kicks in 60 days after the loan closes, and the policy will pay up to 12 payments of principal and interest.

Bank of America introduced Borrowers Protection Plan to replace revenue from single-premium credit life insurance, which it began phasing out last year. You have to get a mortgage from Bank of America to get the bank's job-loss insurance.

Policies offered by GE Casualty, on the other hand, are sold only to people who already have a mortgage. GE's policy was introduced last month and will be sold through direct mail solicitations from insurance agencies affiliated with participating mortgage servicers.

Customers can buy policies that will pay half or all of the monthly mortgage payment, with a maximum benefit payout period of six or nine months. It costs about $45 a month for coverage that will pay all of a $1,000 mortgage payment for a maximum of six months.

GE Casualty is part of GE Insurance, which belongs to General Electric.

Smaller companies offer coverage, too
Bank of America and General Electric are heavy hitters, but they're not the only companies in the job-loss mortgage insurance game. Another is Mortgage Payment Protection Inc., which doesn't market directly to consumers and instead sells policies through banks, credit unions, builders and real estate agents.

Mortgage Payment Protection Inc. also sells policies through the increasingly popular down payment charities, which give down payment money to home buyers and accept donations of identical amounts, plus administrative fees, from sellers.

One such down payment charity is Neighborhood Gold, based in Orem, Utah. It offers a mortgage unemployment policy through Mortgage Payment Protection Inc. to all clients, free for the first year. At closing, home buyers can pay for the second year of coverage for $200 -- a 50 percent to 75 percent discount, says David Ahrens, vice president of marketing for Neighborhood Gold. After the second year, homeowners deal directly with Mortgage Payment Protection Inc.

"In the economy today, people are somewhat concerned about taking on an investment like a mortgage," Ahrens says. "This (insurance) gives them peace of mind -- even if nothing does happen, they feel more comfortable knowing that, should something happen, they'll be covered."

Another down payment charity, Family Home Providers of Cumming, Ga., offers an alternative to mortgage unemployment insurance -- a foreclosure prevention service called the Mortgage Assistance Plan. The plan, administered by The Property Group Inc., of Roswell, Ga., doesn't make mortgage payments. Instead, PGI employees negotiate with lenders.

A PGI spokesman declines to provide details because he does not want the company to be lumped in with insurance companies, which he says consumers dislike.

-- Posted: Nov. 21, 2002




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