Free job-loss mortgage insurance?

In the fine print

As with any insurance plan or legal document, read carefully before you sign. Common provisions in the fine print include:
  • Coverage level. "Consumers may believe the policy will cover the full mortgage payment or even other consumer debts," says Michael T. McRaith, the Illinois insurance commissioner. McRaith says many of these policies, "only cover the minimum payment required to keep the mortgage from foreclosure."
  • Effective date. Policies often delay the date they become effective by a month or more to eliminate people who sign up for the plan when they know their jobs are in imminent jeopardy.
  • Payment date. Don't assume your mortgage payment will go out the day after you lose your job. In fact, the check goes out to the mortgage company 30 to 60 days after the job loss.

Will it work for you?

Who are these plans best suited for? "Anyone in a company or career field that is not rock solid in this economy," Forsman says, adding that recent college graduates may also be looking for some insurance assurance.

Many people are excluded from taking advantage of these plans, typically those who are:

  • Self-employed.
  • Already unemployed.
  • Under age 18 or over age 60.
  • Retired.
  • In active military service.

Moreover, the job loss must be "involuntary." The definition of "involuntary unemployment" is narrow. It does not include quitting, resigning, retiring, expiration of an employment contract, being fired for cause, or being on leave due to accident, sickness, disability, family obligations, childbirth, pregnancy, or due to scheduled seasonal or temporary breaks. If you're a union worker, find out -- before you sign up -- if you're covered while on strike.

Some plans are only for first-time buyers (there's the likely assumption that this group is least likely to have an emergency fund after forking over a down payment) and must be handled at the closing. Some plans are available to current homeowners. Some are renewable, others aren't.

One more thing: Any payments made on your behalf to the mortgage company may be considered taxable unemployment benefits.

"Evaluate carefully whether the investment is well-spent," says McRaith. Could the premium paid be better spent or saved elsewhere? "As the decision is made, the consumer should ensure that his or her unique financial and life circumstances are properly considered."

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