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Unemployment Protection Insurance
New Program Eliminates
Many Home Buyers' Greatest Fear
T he greatest fear of most home buyers is not being able to pay their monthly mortgage payment for up to 30 years straight. Ask yourself: if you lose your job tomorrow, how many months could you pay your mortgage before your savings run out? Thanks to this new mortgage industry program, the fear of unemployment causing a mortgage foreclosure has been lessened.
Milwaukee, Wisconsin and Stamford, Connecticut - MGIC Investment Corporation and Warrantech Corporation recently announced that lenders soon will be able to offer borrowers a Warrantech home service contract that includes unemployment protection.
The unemployment benefit works this way: Under the plan, the home owner is offered a maximum benefit of $1,000 a month for up to six months of involuntary unemployment within a twelve month period. Of course, if a borrower's housing payment is higher than $1,000 per month, the borrower will have to make up the difference. Presumably, an unemployed borrower would also be eligible for some type of unemployment compensation. This program is not a credit life insurance program to cover disability or death of one or more borrowers. Nevertheless, an unemployment protection policy may give many would-be borrowers the confidence to become home owners.
Unemployment protection is offered as an additional feature to Warrantech's home service contract and is not available separately. The annual cost for a policy ranges from $180 to $408 depending on the type of policy purchased. The home service contract has been offered by several companies for many years-Warrantech is the only firm currently offering unemployment protection.
"The addition of unemployment protection to our home service contract gives borrowers a low-cost safety net that will pay their mortgage should they involuntarily lose their job," said Warrantech Home Service President Joseph Melendez. "This type of coverage, combined with Warrantech's home service contract, will help home owners overcome those critical financial stresses, such as expensive household repairs and job loss, that often can lead to foreclosure."
A unique feature of both the home service contract and the unemployment protection plan is the availability through mortgage lenders and the extension of the coverage beyond five years. Until recently, similar types of coverage were obtained through Realtors and home builders and came with limits of one to five years.
In order to obtain the coverage, borrowers must purchase the policy in conjunction with a home service contract. Warrantech's home service contracts are issued and serviced by Warrantech Home Service Company, marketed nationally by MGIC Investor Services Corporation, a subsidiary of MGIC Investment; and are insured by American Zurich Insurance Company, rated A+ Superior by AM Best Company. The contracts are available to home owners through mortgage lenders who have signed up to offer the program and provide for the repair or replacement of mechanical systems and appliances that fail due to aging and normal usage. Unemployment protection is offered subject to individual state approval.
Is unemployment protection a good deal? Combined with the home service contract, the unemployment benefit costs extremely little when compared with the protection it brings. Even at $408 per year, a borrower who is unemployed once for three months will get back over seven years of premiums. Unless a borrower has the equivalent of at least six months of salary available in liquid assets, unemployment protection provides substantial financial protection and peace of mind.
Unemployment protection coupled with a home service contract is a new product being rolled out across the country. Home buyers interested in obtaining this type of coverage should ask their loan originator if they offer this product. Home owners should contact their mortgage servicer to check availability.