Is Mortgage Layoff Insurance a Good Deal?

Edward Trapunski
by Edward Trapunski January 25, 2016 / No Comments

The main worry for some homeowners in Alberta is whether they’ll lose their jobs and have enough money to be able to pay their mortgage, not whether interest rates will fall.

While the Bank of Canada didn’t lower its overnight rate last week, it warned that conditions in the Alberta oil patch has already plunged the province into recession with accompanying job losses. In December 2015, Alberta’s seasonally adjusted unemployment rate stood at 7%, up from 4.7% a year earlier.

Due to the current economic situation in Alberta, Edmonton-based insurance and mortgage provider First Foundation is offering layoff insurance to cover up to six months of mortgage payments for homeowners who lose their jobs. The insurance is underwritten by SSQ Financial Group in Quebec.

To qualify, you must:

  • Be a Canadian resident between the age of 18 to 63 with a mortgage and are able to obtain unemployment benefits.
  • Receive a T4 slip as an hourly or salaried employee.
  • Have worked at least 25 hours per week for the past 30 consecutive days.
  • Not know that a layoff is pending. The insurance won’t pay out if a layoff comes within 90 days of signing up.

Business owners and the self-employed are ineligible for coverage. And you’re excluded if you are terminated with cause, resign, take a voluntary layoff, or retire.

The insurance costs about $60 per month for a $300,000 mortgage or $77 per month for a $400,000 mortgage. If the policyholder gets laid off, a predetermined sum is paid directly to the lender. The payments aren’t taxable and won’t affect EI claims. Since layoff insurance is a supplement to EI benefits, unemployment insurance can cover other important expenses while you ride out the bad times.

While some banks and other lenders offer layoff insurance, First Foundation says its plan follows the policyholder if they sell and buy another house so that it’s independent of the mortgage.

While there are advantages to layoff insurance, there are also some disadvantages:

  • While each policy is different, it generally only pays the minimum amount required to keep your home out of foreclosure. It also doesn’t provide a sum of money equal to your monthly wages or your mortgage payment so be sure to read the fine print.
  • Layoff insurance is tied to your unemployment insurance. You have to file and submit proof that you’re collecting for the insurance to kick in.
  • If you supplement your EI benefits with temporary, part-time or contract work, it affects your eligibility.
  • It’s a one-time deal. If you are still unemployed after six months, it does not reset.
  • The cost of layoff insurance can vary based on your age, health, current value of your house, the amount of your regular payments, and the current payoff amount of your mortgage.

If you have a low mortgage payment it might be more worthwhile to invest in an emergency fund of six or seven months’ salary with enough of a cushion to tide you over. This saves you from paying the premium to the insurance company. On the other hand, if your unemployment last longer than six months, with layoff insurance, you can still fall back on your emergency fund.

Here’s another way to use layoff insurance: If you’re trying to sell your house but the buyers are worried about losing their jobs, you could offer to pay for a year or two of protection, which could make them more inclined to sign on the bottom line.

Flickr: Jeff Turner