Unemployment insurance explained
- 14TH JUNE 2007
Few jobs are now considered as being for life says Simon Burgess, MD of British Insurance. Markets changes, new technology comes along, firms expand and decrease in size. There are acquisitions, mergers, restructuring, down sizing and lots of other changes which can threaten your employment.
Unemployment insurance is often known as income protection insurance because that is what it is designed to protect. The monthly cost can be reasonably low whilst the benefit it offers may be essential to your financial wellbeing. However income protection is not suitable for everyone and therefore this article is designed to give you a little more understanding about the cover. For full details you are strongly advised to read the policy summary and policy wording of the actual policy you are interested in purchasing to make certain that it meets your needs.
Income protection policies typically pay out the benefit offered on a monthly basis for up to a maximum benefit period of 12 months. Some do cover longer periods but 12 months is typical. It would be hoped that over a 12 month period you would have a reasonable time to find another job or alternatively find another way of balancing your finances.
The policies do not pay out straight way. They will require you to be unemployed for a period of time before they will consider a claim. The better policies will only require you to be off work for more than 30 consecutive days before they will consider a claim. Some policies double this requirement to 60 days.
The better policies will also pay benefits back to day one. That means that if you are off work for 31 days then the benefit will be paid for 31 days. However if the minimum period is written as an excess, then the policy will deduct the 30 or 60 day waiting period from the claim.
Whilst the state does provide some benefits the safety net is unlikely to be set at the level of living you would like to retain. Therefore by taking out your own income protection policy you will have choice over the benefit level. You can therefore judge what monthly benefit you require subject always to the insurers own maximum limitations of the level of benefit selected.
Now every insurance policy has exclusions and limitation and income protection is no different. Not all policies will be suitable for every person either. So you will need to select a policy which is suitable for you. We provide some examples of the areas you may need to look at. These are only examples and the list is not exclusive.
Firstly income protection does not cover unemployment or redundancy you knew about before you took the policy out irrespective of how far in the future that unemployment or redundancy occurs.
