Does Mortgage Layoff Insurance Make Sense for You?

In Alberta, especially, the tough economy is starting to lead to more mortgage defaults. Surely, there must be a way for borrowers to protect against losing their house if they get laid off.

Traditionally, finance experts recommend a combination of good planning while times are good, saving money on things like groceries to make unemployment benefits last a little longer, and perhaps borrowing from a friend or relative. Many experts recommend renting so when times get bad, someone can more easily pull out and move to an area where jobs are more plentiful.

There’s a product on the market which can make it easier to deal with a layoff, especially if you have a mortgage. It doesn’t matter how low your mortgage rate is if you lose your job and can’t make the payment.

Here’s the case for getting mortgage layoff insurance, now, before you need it.

What is mortgage layoff insurance?

Mortgage layoff insurance is a relatively simple product. If you get laid off, it’ll make your mortgage payments. This takes one major headache off your plate, leaving you free to look for a job without having to worry about running out of food or getting the power switched off. Theoretically, unemployment benefits would be enough to cover the rest of the household expenses.

There are a few conditions, of course. It only covers folks with traditional jobs, which means business owners can’t claim it. Many of Alberta’s oilfield operators are actually contractors, not employees, which means they wouldn’t be eligible for the product. Only full-time employees can qualify, and new policyholders must keep their job for at least 90 days after the policy comes into effect.

Additionally, employees won’t get benefits if they get fired with cause or if they quit, no matter how bad working conditions are. It’s the same thing with folks who are voluntarily laid off. Mortgage layoff insurance only covers people who experience the hardship of losing their job through no fault of their own.

The cost is reasonable too, coming in at approximately $15 per month for every $100,000 owed on the mortgage. This puts it at a comparable price point to many life and disability insurance policies.

It also isn’t available everywhere. There are only a few different insurance companies that offer it today, and they’ve focused their efforts on marketing mortgage layoff insurance in Ontario, Alberta, and British Columbia almost exclusively.

How mortgage layoff insurance can be used

For many workers who have already been laid off, mortgage layoff insurance would be a godsend right now.

I’m not sure I’d recommend somebody have a product like this at all times. When times are good, somebody who loses their job can pretty easily transition into another one. It might take a few months, but it’s not the end of the world, especially for someone with an emergency fund.

The time to get mortgage layoff insurance is definitely during bad times, especially if you work directly in a related industry. Oil and gas jobs are disappearing quickly in Alberta these days. People who haven’t been laid off are in a constant state of worry that they’ll be next.

Perhaps a more sensible approach would be to use the product when times are tough, for a year or two as a safety net. Once things get better, you can drop the policy. As with disability insurance, the hope would be you’d never have to use it.

Once times get better, the insurance holder would then aggressively save up an emergency fund to ensure they don’t need to use layoff insurance again.

Perhaps most importantly, mortgage layoff insurance offers assurance. A policyholder knows their biggest bill will be taken care of when they’re at a weak point financially. That feeling can be worth a lot, especially when times are tough.