Layoff Insurance is Just Another Sales Gimmick

(MoneyWatch) 
If we've learned anything from this financial crisis, it's that sometimes an offer -- think the no down payment mortgage -- that sounds great is just another sales gimmick to get us to buy stuff we probably can't afford in the first place.

On Sunday, the New York Times published a story about the increasing number of companies offering layoff insurance in an attempt to get fearful shoppers to buy everything from airline tickets and business suits to cars and homes.

How are they trying to tempt you? Here are some examples. Airline JetBlue is offering a full refund to anyone who loses a job before using a ticket or vacation package. Hyundai Motor America will cover your auto loan or lease payments for three months if you receive a pink slip. After that, if you're still out of work you can simply return the car without suffering any black marks on your credit report. And home builders like Lennar say they will cover your mortgage payments for six months if you get laid off.

A little insurance in case you receive that dreaded pink slip sounds great on the surface. After all, the US jobless rate is currently over 8% and is likely to keep rising before this recession ends. But you'll have to forgive my cynicism, I just don't buy that a sales gimmick is a solution for a family's strained finances during a period of extended job loss.

First, these programs are riddled with loopholes. For example, many of them (including ones offered by a handful of home builders) typically only protect full time employees. So if you're self-employed you won't qualify. (A few companies, such as the auto makers, will cover those who're self-employed if they truly hit rock bottom and file for personal bankruptcy. But should that happen, let's face it, you've got bigger problems than a car payment.)

Second, like so many gimmicks, you have to read the fine print. The insurance programs for the larger ticket items don't cover that much and don't last that long. Hyundai's Assurance Plus program, for example, will only cover three months of payments and only lets you return the vehicle during the first year. Home builders like Lennar and Toll Brothers are only offering protection during the first two years of ownership, will only spot you for six months, and even then will only pay up to $2,500 per month.

While a three to six month break from bills is certainly better than nothing, it isn't unrealistic to imagine that you could find yourself out of work for a much longer period of time. Instead, you should probably put off large purchases of any kind if you're at all worried about losing your job. Think of it this way, sales gimmicks like the "no down payment" mortgage are partly responsible for how our country got into this mess in the first place. There's no reason for us to go around and just find another way to finance purchases we can't really afford.

Is There a Sale On image by timparkinson, CC 2.0