A job loss insurance policy--or job loss protection plan--is a form of mortgage protection insurance that allows a homeowner to continue making mortgage payments for set period of time after becoming unemployed.

The Importance of Mortgage Payment Protection

When the unemployment rate rises and home buyers are insecure about their employment prospects, they may hesitate to invest in a home--even when mortgage rates and prices are at record lows.

To combat this hesitancy, lenders sometimes offer a mortgage payment protection plan, which may be paid for by the lender or by the person selling the house. This form of job loss insurance can allow buyers to make payments for a set period of time--often about six months--after losing their jobs, which can help homeowners avoid foreclosure.

Job Loss Insurance Encourages Home Buyers

If you're planning on buying a house but you're concerned about how the job market may affect your ability to make payments, investigate job loss insurance as an option. Mortgage protection insurance can be beneficial, since it may provide you with the extra confidence you need to commit to a home purchase and take advantage of low prices and interest rates that won't last forever.

Before signing on the dotted line, however, do your homework. Read the fine print on your policy and recognize that agents, builders and lenders have much to gain by providing you with this confidence. Make sure your policy benefits you, rather than benefiting the lender and builder at your expense.

Carefully review these elements of the policy:

• Coverage: If you lose your job, will the insurance cover your entire payment, or will it cover only enough to keep you from foreclosure?
• Effective date: Most policies delay the effective date to discourage those who buy job loss insurance just before they know they will become unemployed.
• Payment date: How soon after your job loss will the payments begin?