What is job loss insurance?

You know that sinking feeling when your boss pulls you into an unexpected 1:1 call?

Chances are you probably won’t be fired. But wouldn’t it be nice to have some sort of insurance product that makes sure your bills are paid even if you were? It would certainly make those 1:1 notifications a little less stress-inducing.

Introducing: job loss insurance. 

With most people financially treading water in today’s economy, losing income is the ultimate nightmare. Read on to learn how you can protect your family and make sure your loan payments are covered, no matter what.

What is job loss insurance?

Job loss insurance is a type of insurance that covers your monthly payments in case you can’t work due to job loss. It could cover things like car loans, rent, credit card payments, mortgage payments, and more. It’s designed to help keep you on top of outstanding balances on your loans so you don’t miss payments and ruin your credit.

What are the main types of job loss insurance?

Job loss insurance is a blanket term to describe a number of specific insurance products. Job loss insurance may also be called creditor insurance, income replacement insurance, and other names depending on what it is covering. In general, it replaces your income from your job, but some insurance policies may only cover specific debts that your income usually covers. 

1. Mortgage Payment Protection Insurance: This type of insurance is designed to cover your mortgage payments in case of job loss. It ensures that you can keep your home even if you’re temporarily unemployed. There is also mortgage life insurance, which pays off your mortgage if you pass away unexpectedly.
2. Loan Payment Protection Insurance: Similar to mortgage protection, loan payment protection insurance covers various types of loans, such as personal loans and auto loans. It helps you make loan payments when you’re out of work. It’s usually sold to you when you apply for your car loan.
3. Credit Card Payment Protection: Credit card payment protection insurance covers your minimum monthly credit card payments if you lose your job. This can prevent your credit card debt from escalating when you’re unemployed.
4. Employment Insurance (EI): This is a government-provided program in many countries, including Canada. It offers temporary financial assistance to individuals who have lost their jobs through no fault of their own. It is typically funded through payroll taxes by you and your employer. There are certain eligibility requirements, including having worked a certain number of hours before you can claim benefits. 

There are other types of benefits you can receive if you are unable to work due to injury or illness. These are sometimes confused with job loss insurance products. However, these types of insurance provide income replacement if you cannot work due to injury or illness, not termination. 

1. Short-Term Disability Insurance: Short-term disability insurance provides income replacement if you’re temporarily unable to work due to a covered disability, injury, or illness. It can act as a bridge to cover your financial needs during short-term unemployment due to medical reasons.
2. Long-Term Disability Insurance: Unlike short-term disability insurance, long-term disability insurance covers extended periods of disability and may continue to provide income replacement if you can’t return to work for an extended time.

Critical Illness Insurance: While not job loss insurance in the traditional sense, critical illness insurance can provide a lump-sum payment if you are diagnosed with a severe illness or condition. This can help cover medical expenses and other financial obligations during a period of illness when you may not be able to work.

What is the difference between disability insurance and job loss insurance?

Sometimes, people get disability and job loss insurance confused. Ultimately, they’re both types of insurance designed to replace your income, but there are a couple of differences in the details of what they cover and when. 

Job loss insurance: Provides income replacement (up to a certain percentage) if you are fired or terminated (or in some cases if you quit). This product assumes you cannot return to your previous job. 

Disability insurance: Provides income replacement (up to a certain percentage) if you are ill, injured, or disabled. This product assumes that you will go back to work in some capacity at some point, once you have recovered. 

In some cases, you have disability insurance through your employer benefits plan already and the premiums are either partially or totally covered by your employer. Usually with job loss insurance, you buy this on your own as personal income protection. 

Some providers offer disability coverage in combination with job loss insurance, specifically for bigger loans like mortgages. If you still have the job but can’t work, disability insurance applies, but if you’re let go and can’t work then job loss insurance applies. The financial institution likes to sell this combo product because it means they’ll get their loan payment no matter what happens to you.

What does job loss insurance cover?

Job loss insurance covers specific financial obligations and provides benefits when you experience involuntary unemployment or job loss. It can cover things like: 

• Your mortgage payment
• Your credit card payment 
• Your insurance premiums 
• Your living expenses 
• Your rent 
• Your education expenses

Essentially, it can cover anything that your job would normally pay for. However, you should pay attention to where you buy this insurance from, as that might determine where the coverage applies. For example, if you buy this coverage through your credit card, the coverage may only be for your credit card balance exclusively. 

Eligibility for job loss insurance

To qualify for job loss insurance there is a strict set of eligibility requirements. In general, eligibility rules can include: 

• You must have worked at least 6 months at your current job 
• You must be working full-time (20 hours per week minimum)
• You must be between 18 and 70 years old

Those who are self-employed, retired, working part-time, or working on temporary contracts generally cannot get job loss insurance. 

Additional requirements may include:

• Working for a certain period of time before the time of application (sometimes 6 months minimum)
• You are not aware of your pending unemployment (no knowledge of impending layoffs or legal strikes) 
• You must enroll in Canada’s EI program before you receive your secondary job loss insurance coverage

Some job loss insurance policies might have a waiting period before you can receive your job loss benefits. In some cases, you may have to wait 30 days before claiming.

How much does job loss insurance cost?

The cost of your job loss insurance will depend on your age and the total amount of coverage you are looking for. The premium cost is usually calculated by taking your monthly payment amount and multiplying it by the rate you’re eligible for based on your age. 

It’s important to note that as you get older, the price of loan insurance goes up.

Is job loss insurance worth it? 

In some circumstances, job loss insurance may be worth it. If you have trouble creating a savings account bigger than a few months, job loss insurance might be a way to ensure your bills get paid if you don’t have income for a while. 

However, there are many downsides to job loss insurance: 

• The waiting period: Most job loss insurance require that you are out of work for at least 30-60 days before they will start paying benefits. This means you still have to cover your own bills between now and then with your savings. 

• • Maximum payment period: Most policies have a maximum benefit period of six months, meaning if you’re out of work for longer then you’re out of luck. 
  • EI requirements: Many providers require that you’re enrolled in Canada’s Employment Insurance program.
  • Termination for cause: Some providers may not provide coverage if you are fired for cause. 
  • Coverage when you quit: Some providers will give you benefits if you quit, but that isn’t always the case. 
  • No coverage unless you’re a full-time worker: If you are self-employed, work on contract, or seasonally, you are not eligible for job loss protection. 

• It can be expensive: Job loss protection coverage, like mortgage insurance, is often based on the total debt, which can add up depending on what debt it is covering.

• You can’t have coverage elsewhere: If you already have disability insurance coverage or other income replacement coverage, you may not be eligible for benefits.  

The bottom line: Job loss insurance is too expensive for the amount of coverage you get.

Who sells job loss insurance?

Almost all financial institutions and creditors will offer some form of loan protection insurance. In some cases, they will offer coverage for the loan only in the case you pass away or become severely disabled—not fired. So always check your policy wording. 

Some financial institutions that sell job loss insurance products include: 

• Scotiabank
• BMO
• Desjardins
• Manulife
• RBC

While these big financial institutions are reputable and have great insurance products, we wouldn’t recommend job loss insurance. 

If you’re looking for a cost-effective way to protect yourself financially, there are other insurance products we would recommend first. 

If you’re mostly worried about not being able to work due to injury or illness (which might be more likely than randomly getting fired) we would recommend short and long-term disability insurance. The benefits of disability insurance can be used for anything your income usually covers like daycare, groceries, and more. The total amount of coverage does not decrease. Plus, disability insurance usually costs about 1-3% of your annual salary, which can be much lower than the cost of job loss insurance.

Get a quote for job loss insurance

While PolicyAdvisor does not provide job loss insurance, we work with over 30 great insurance companies and financial institutions that may be able to provide this product for you. Although, we’d like to stress the importance of assessing your insurance needs before you sign on the dotted line. Have a quick chat with one of our expert insurance advisors. We can help you find the right insurance product for your financial goals within your budget. Book a call today! 

The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail.  All rights reserved.

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