The truth about job-loss or unemployment insurance

By Devansh Sharma, ECONOMICTIMES.COM | Jun 08, 2017

If you are considering to buy a job-loss cover, read the primer so that you do not end up buying something you did not want.

If you are afraid you might be laid off by your company, don’t assume a job-loss insurance will keep you afloat during the few months you will be between jobs. There’s a good chance that you will not even be eligible for it. 

Caught off guard by the recent spate of layoffs, especially in the tech sector, many employees might look for a quick-fix such as a job-loss insurance. If you are considering to buy a job-loss cover, read the primer below so that you do not end up buying something you did not want: 

Stand-alone job-loss covers not available 

No insurance company offers a stand-alone job-loss insurance policy. It is available only as an add-on with other polices that cover larger risks such as accident and critical llness. 

What it covers
The insurer pays only three biggest EMIs usually capped at 50 per cent of your income. 

When it kicks in
There is a waiting period of one-to-three months before the cover comes into effect. The claim can be made only once during the term. 

What a job loss means
The policy covers you only in case of retrenchment by employer due to merger or acquisition, for which you have to submit a written proof of retrenchment. Without this proof, the claim is not admissible. 

What is not considered a job loss
Most policies have certain exclusions which make you ineligible for a claim. Below is a brief list of exclusions considered by different insurers: 

Job loss due to reasons other than retrenchment as a result of merger or acquisition. Unemployment of a self-employed person. Unemployment due to voluntary resignation or early retirement. Unemployment during probation period. Any termination, suspension or retrenchment from employment due to poor performance of the insured. Job loss due to pre-existing diseases and health conditions. Job loss due to disciplinary action. 

Remember to enquire about these grey areas
Insurance companies don’t have same conditions for job-loss covers. Do enquire about the following before you buy the cover:
Are you eligible for the claim if the employer offers you severance pay?
Will you get the claim if the employer gives you a notice before termination as per your contract?
What happens if you have been fired but do not have a written document to prove it? 

Forget the claim if you can’t furnish the proof
Proof of retrenchment is a must because only that will help the insurer ascertain if you are eligible for the claim. “Written proof of retrenchment is one of the crucial documents that is required to assess the cause of job loss. The job-loss policy triggers only if the termination is due to the conditions included in the policy and is not a voluntary resignation by the customer. Hence documentation citing the reasons and circumstances of termination is important,” says Sasikumar Adidamu, Chief Technical Officer at Bajaj Allianz General Insurance. 

Is there anything more helpful than a job-loss cover?
Considering the narrow scope of the cover and the limitations, job-loss insurance add-on does not seem to be a dependable option. Is there anything that can really help? Yes, just sticking to the basics and plan well. 

The most dependable option is to create and maintain a contingency fund which covers four-to-six months of your expenses. Besides the contingency fund, short-term investments with flexible liquidity would help you sail through difficult times easily. Irrespective of the size or yield of your portfolio, your investment is the best insurance against a job loss if it can be easily liquidated. 

So should you just forget about job-loss insurance?
The insurance market is evolving and new products keep coming. In future, companies might offer a stand-alone job-loss covers that have conditions more favourable to employees. “At present, a company’s job-loss cover comes as a value-added service to personal accident covers and attempts to provide cover for all the key possible reasons that can lead to a loss of job. 

However, an individual comprehensive policy against the risk of job loss, if presented, could take a whole new range of conditions into consideration,” says Adidamu of Bajaj Allianz General Insurance.

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