We've been discussing job loss, or "unexpected unemployment," insurance. The subject will come up during a home buyer's negotiations with lenders or builders, and Florida borrowers should know that the insurance will likely be presented as coverage at no cost to the home buyer -- "Why not? It's free!" But it's not really free -- the premiums can be steep, even though the lender gets a wholesale rate from the insurance company, and are rolled into other costs or fees associated with the purchase. In addition, there are eligibility rules and caps on monthly benefits to consider.
We mentioned in our last post that the initial coverage period is one or two years. After that, "free" becomes "absolutely not free." Homeowners may pay premiums themselves. The national lender's coverage is free for year one, then available for 7.5 percent of the monthly principal and interest payment. Finding coverage elsewhere can be tricky, because job loss insurance isn't usually available to consumers.
The exact number of existing policies is unknown, but one Florida mortgage company says it has 200,000 policies in place. A large national lender says it's covered $110 million in mortgage payments for unemployed homeowners in the past two years -- and that lender only offers coverage on homes with initial principal balances under $500,000. Last year, the lender signed up 156,000 homeowners. It also estimates that their job loss insurance plan covers a total of $36 billion in loans balances.
In the end, the decision to go with the coverage is up to the home buyer. Many financial advisers say there's a "why not?" appeal to it. Still, it's important to know what you're "why notting" to.
Source: Miami Herald, "Protection plan for borrowers," Kenneth Harney, 03/27/11