Archive

Posts Tagged ‘Mortgage Unemployment Insurance’

Unemployment mortgage protection insurance

July 2nd, 2009 9 comments

In the event of a job loss, you are eligible to receive unemployment insurance from the State unemployment agency, but those benefits are not enough to cover even the living expenses for most people. If you own a house, you want to protect your house so that you don’t need to worry about finding roof to live under and instead you can look for a new job and think about how to pay bills. Unemployment mortgage protection insurance essentially covers your mortgage payments while you are unemployed. The coverage is not on permanent basis. As soon as you find a job or if you exceed the maximum allowed period, insurance will stop paying. MLINS09©

Depending on the extent of coverage you choose, job-loss mortgage protection policies cover all or part of your monthly mortgage payments. Many policies will cover 6-8 months of mortgage payments in a year. Most policies do not pay until 30 days after you are laid off and may require you to show proof of unemployment.

Most insurance companies do not pay if the mortgage owner loses jobs within 6 months of buying a mortgage protection policy. This clause is added because insurance companies do not want borrowers to sign up for a new policy if they anticipate a lay off in the company (without this protection, insurance providers may incur big losses and may have to file for bankruptcy in an economic downturn. In 2008-09 several companies declared bankruptcy or received government bailout funds in order to survive)

La rêveuse
Creative Commons License photo credit: Arslan

Policy premium and payout varies based on the insurance provider and your coverage needs. A typical policy that insures $1,000 monthly mortgage payment and covers up to 6 months of payment will cost you about $50. If your payment is $2,000 per month, you will pay a premium of $100 per month. Please note that only mortgage payment is covered by most policies. You will have to pay other expenses such as taxes, utility bills etc.

If the homeowner has emergency funds set aside to cover living expenses and mortgage payments for up to 6 months, then it may not be such a good idea to buy unemployment mortgage protection. However, if the likelihood of losing a job is high OR if you do not want to dip into your savings in such unfortunate events, you can buy this insurance.

In United States, this insurance should not be confused with the unemployment insurance offered by Department of Labor which pays a fraction of living expenses based on credits computed using your employment history. State unemployment agencies do not consider the fact that you have a mortgage or other obligations. The benefits earned are generally not enough to cover mortgage payments.

Difference between Mortgage Unemployment Insurance and Mortgage Disability Insurance

Unemployment insurance pays benefits when you lose your job involuntarily and covers a short period. Insurer generally pays for a maximum of 6 months or until you find a new job, whichever occurs first. Since most people will find a new job within 6 months, you are not likely to make full use of the benefits for the maximum allowed period.

Mortgage disability insurance will make mortgage payments on your behalf, if you become disabled due to an injury or sever health condition. This kind of insurance will generally make mortgage payments for a longer duration than the unemployment insurance. Benefits are paid for up to 2 to 5 years.

Mortgage Protection Insurance

July 2nd, 2009 1 comment

Mortgage protection insurance covers your mortgage payments in the event of death or inability to earn wages due to involuntary unemployment or health problems. The most basic form is the mortgage life insurance which pays out the mortgage balance lump sum amount to the beneficiary. Then there are various flavors added such as disability rider, unemployment cover, critical illness etc., so that you will have a comprehensive coverage if you desire.

The idea is to protect our house from the lender when you are not able to make payments. MLINS09©

Mortgage protection insurance and mortgage life insurance are same products but marketed with different names to have a different appeal to the consumers. Please refer to mortgage protection insurance article to learn the consumer needs, eligibility terms, policy restrictions and the major insurance providers. In this article, we list the major types of mortgage protection insurances.

Types of Mortgage Protection Insurance

Insurance and financial products used to be simple and easy to understand. Not any longer. Life insurance comes in many flavors (whole life, term life, universal, return of the premium etc.) and so does the mortgage life insurance. There are specific types of policies to cover the life risk, disability, critical illness, and unemployment risks. More choices are always good for you, provided you understand them clearly and have the tools to help you choose the right product or a combination of right products. Broadly speaking, there are four broad types of mortgage protection insurances each explained here separately.

Mortgage Life Insurance

This is the most basic form of mortgage life insurance which covers only the life risk. The policy holder will insure his mortgage and a designated nominee will be the beneficiary. In an unfortunate event of death, the insurance will pay off the mortgage fully and the beneficiary (generally the spouse) will own the house with no obligation to make monthly payments. Generally, the mortgage lenders offer this kind of insurance and the premium is added to the mortgage payments. However, note that insurance premium will be a lot cheaper if you shop around and choose an independent insurance provider, instead of going with the mortgage lender or with the mail offers. Borrowers aged between 16 and 64 years can purchase this insurance.

As an alternative, you can buy term life insurance for bigger amount that covers the mortgage as well as your living expenses. In any case, the premium paid will be lost if you stay alive after the policy maturity, unless you buy Return of the Premium policies which will refund the premium paid along with interest. However, such whole life policies tend to be more expensive since the insurance company will have pay you either ways.

The next 3 types of policies are add-on products that could be attached to the mortgage life insurance. These are called covers or riders which are basically additional clauses in the insurance to cover extra risk.

Mortgage Disability Insurance

While the mortgage life insurance pays off the mortgage fully, the mortgage disability insurance will just pay your monthly mortgage payments when you become disabled. The coverage will be for short term only. The insurance company will make monthly payments on your behalf for up to 3 years or until you recover from the disability, whichever occurs first. The disability insurance rider can be added to the life insurance so that you will have a comprehensive coverage with a single policy. While other kinds of insurances cover death, job-loss etc., this insurance will cover disability and come to your rescue when you cannot work due to physical conditions. You are buying the peace of mind knowing that you do not need to worry about your mortgage payment during disability. This is kind of insurance is offered by your employers as well and the premium tends to be cheaper and comes with an option to increase the coverage based on your needs. To learn more, check Mortgage Disability Insurance article.

Unemployment mortgage protection insurance

Losing your job is a painful experience, more so if you do not have emergency finds to take care of your living expenses and mortgage payments. In the event of a job loss, you are eligible to receive assistance from the State unemployment agency, but those benefits will not be enough to cover even the living expenses for most people. You want to protect your house so that you don’t need to vacate your home for failing to make monthly mortgage payments. House foreclosures, short sales will have adverse effect on your credit history and should be avoided at any cost. That is where unemployment mortgage protection insurance will help you make mortgage payments while you are unemployed.

Based on your need, job-loss mortgage protection policies can cover all or part of your monthly mortgage payments. Such policies will cover a maximum of 6-8 months of monthly payments in a year. Most policies do not pay until 30 days after you are laid off and may require you to show proof of unemployment. Many unemployment insurance policies do not provide coverage for the first 6 months of the policy period. This clause is added because insurance companies want to avoid those who sign up for a new policy when lay off in the company is anticipated. Refer to unemployment mortgage protection insurance article to better understand such restrictions.

Mortgage Critical illness Insurance

Just like unemployment insurance, critical illness insurance will also pay the benefits to the insured, not to the beneficiary. You will be insured against sever health conditions such as stroke, heart attack, kidney failure, cancer etc. among several other diseases listed by the insurer. If you are critically ill, the insurance will make a lump sum tax free payment to pay off your mortgage or other liabilities. Only those health conditions pre-approved by the insurer will be covered, but most companies cover the major diseases.

Critical illness insurance is popular in Europe and Australia, but is also gaining popularity in United States. Most policies require that the insured person survive a minimum survival period, generally about 30 days. You can get critical illness cover for the mortgage or for the life, in which case the lump sum amount can be used for other purposes including mortgage payoffs. You can expect to go through thorough medical exam when you apply for a policy to make sure there are no pre-existing conditions. Your premiums may be higher if you have a family history for any of the listed diseases.

You will be able to add critical illness cover to your mortgage life insurance so that one policy will provide all the coverage.

Mortgage protection insurance is different from Private Mortgage Insurance (PMI), which provides insurance protection to mortgage lenders. You will pay insurance premium for PMI when you are buying a house and do not put 20% down payment. This insurance will protect your mortgage lender in case you cannot make payments and lose the house.