Unfortunately, most jobs aren't tenured. As a result, people can find themselves unemployed in both good and bad economic times. But there's good news: if you lose your job, you can avoid making certain types of payments.
Enter layoff protection plans. These are safety nets for consumers, which allow them to return certain goods to the manufacturer in case of unemployment. So, if you buy a new car under a layoff protection plan and suddenly find yourself without a job, you might be able to return your car for a refund or defer payments, saving yourself from having to make car payments when you're lacking income. This sounds like a fool-proof way to buy what you want in shaky economic times, but are these plans really beneficial for consumers? Read on to find out.
Layoff Protection 101
Layoff protection plans are generally offered by manufacturers and they provide a safety net for the consumer. They work like this: if an individual becomes unemployed, the manufacturer may take the item back, make payments on the item for the consumer or provide some other form of compensation that makes the burden of paying for the item a little more palatable.
The reason manufacturers do this is simple: profit. Offering protection plays can be a good way to drive sales, particularly during slow economic times, when consumers are understandably reluctant to spend money.
2009: The Year of Car Assurance Programs
Perhaps one of the best ways to get a feel for what major corporations have offered in the way of layoff protection type plans is to take a look at a few real life examples.
In early 2009, many companies began to introduce layoff protection plans to try and offset the impact the financial crisis was having on car sales. At that time Hyundai Motors unveiled its "Hyundai Assurance Program." According to a news release "Hyundai is providing a complimentary vehicle return program for the first year on every new Hyundai that is financed or leased for owners who experience an involuntary loss of income within 12 months of the purchase date."
According to that same release, covered circumstances included:
- Involuntary unemployment
- Physical disability
- Loss of driver's license due to medical impairment
- International employment transfer
- Self-employed personal bankruptcy
- Accidental death
Later in 2009, Hyundai offered what was called "Hyundai Assurance Plus." According to their release, "Hyundai Assurance Plus provides a one-time, 90-day payment relief benefit in the event of involuntary unemployment or physical disability. For qualifying consumers, this benefit helps them keep their vehicle for three months while attempting to replace their income. Hyundai Assurance Plus pays the lender a lump sum equal to 90 days of loan or lease payments."
Hyundai stopped offering both programs in 2011.
Perhaps not surprisingly, Ford and General Motors, the two American auto giants, instituted similar plans. Their hope was to spur revenue, while at the same time providing a safety net for consumers, making them feel comfortable enough to go ahead with a large purchase in tough times. Ford's program was known as the "Ford Advantage Plan" and GM's was known as "GM Total Confidence." Both have since discontinued the program.
Meanwhile, airline JetBlue instituted a program that was meant to put would-be travelers' minds at ease. It was called "The JetBlue Promise Program." According to the company's 2009 release: "The program allows customers to book through the busy summer and holiday travel seasons with confidence by honoring a full refund to anyone who experiences involuntary full-time job loss prior to their trip." Customers who booked flights between Feb. 1 and June1, 2009 were eligible for the program.
Tips: Be Aware Of Any Details
Consumers need to understand all the terms associated with any layoff protection program before entering into it. While these are not necessarily a bad thing, they are designed to entice consumers to buy, so consumers need to look out for their own best interest. After all, there may be certain stipulations that could prevent the consumer from collecting the benefit, and you'll need to know what these are before you make a decision on a large purchase.
With regard to the Hyundai Assurance Program, the release offered the following: "Consumers must have made at least two scheduled payments on their loan or lease, be current on all payments and pay for any outstanding balance above the $7,500 benefit amount which results from negative equity. Once the benefit is approved by the Hyundai Assurance administrator and the customer pays any outstanding balance, the customer returns the vehicle to the selling dealer, whose appraisal is factored into the valuation formula, and the consumer avoids further financial obligation or negative impact to his or her credit. The dealer is then able to remarket the vehicle." In this case, the customer would essentially be selling the car back to Hyundai, possibly at a loss. While this could still save some consumers from bigger credit and debt disasters, it's definitely not a free ride.
Are They Worth It?
For consumers who think they may experience unemployment after a product or service is purchased, such a plan may make sense. But then again, if the prospect of unemployment is seriously in the cards, perhaps making a large purchase (such as a car or an airline ticket) may not make much financial sense in the first place. Of course that is up to the consumer to determine.
Here are some final tips:
- Consumers should make sure that they think the product or service is a good value regardless of the layoff protection plan. A protection plan should generally be considered a value-added feature
- Savvy consumers would be wise to research whether competing manufacturers are offering similar deals/plans or if they plan to. Searching news releases online and/or contacting dealers or retailers is a good way to check. Also, prior to going out and shopping, do a little homework online and see what manufacturers are offering in terms of layoff protection plans, if anything.
- Consumers may be able to use the existence of a layoff protection plan as leverage. For example, a consumer shopping for a car may be able to approach an automaker and use the fact that another automaker is offering a layoff protection plan as a point of leverage to try to obtain a lower purchase price.
- Finding a really great deal may trump the benefits of buying a product or service that sports a layoff protection plan.
The Bottom Line
If you get laid off, a layoff protection plan can be of great value. However, there are almost always conditions, so make sure you are aware of them before you buy in. If you think you may get laid off, the best financial protection may simply be not to make the purchase.
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