Unemployment insurance is an invaluable safeguard that, in the event you unexpectedly find yourself jobless or unable to work, can cushion you and your dependants from financial hardship and can literally help to keep a roof over your heads.
Income protection insurance works by paying you a monthly income into your bank account in the event you lose your job due to circumstances beyond your control.
When you take out employment insurance, just like life insurance, you cannot immediately make a claim within a certain period of time of the policy inception date.
You will need to make sure you fully comply with the terms of your insurance policy and never miss a monthly payment to successfully make a claim, should you need to.
If you lose your job through no fault of your own and need to make a claim, your insurer will require proof of your ID and address together with proof of income such as payslips and/or a letter from your employer.
Some insurers will require additional information about your most significant financial commitments such as your mortgage or rent, and may also ask about any dependants you may have (i.e. a partner/spouse and/or child/children that relies on your income).
An example of a typical income you would expect to receive from an unemployment insurance policy is usually 50% to 70% of your yearly salary.
The reason you would not receive 100% of your yearly salary is because the payments are not taxed and you should also be entitled to claim certain state benefits to subsidise your lost income.
For example, if you earn £30,000 per year and take out cover for up to 50% of your yearly salary, you will receive a tax-free income of £15,000 per annum, paid by monthly instalments of £1,250.
There are advantages and disadvantages to having this type of insurance, as set out and summarised in the table below.
Unemployment insurance pros |
Unemployment insurance cons |
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Gives you peace of mind that you can pay important bills and look after your loved ones, in the event you lose your job or can’t work. |
If you’re a self-employed contractor or seasonal worker, you might not be able to get cover. |
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Can choose a flexible term to ensure you’re fully covered while you’re still paying off a mortgage or other large debts. Alternatively, you can pay for more expensive cover that lasts indefinitely or until such time as you return to work, get another job, retire or die. |
If a policy includes accident or illness cover, there are certain dangerous jobs or activities and medical conditions that may not be covered. Also, if you sustain an injury due to war, riots or terrorism, or purposely injure yourself, or was involved in illegal activities such as using drugs or alcohol, again, you wouldn’t be covered. |
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Premiums can be reduced if you agree to defer receiving a payout on your policy between 30 to 90 days from making a claim (if you will have sufficient income from another source like an employer or savings to see you through for the first couple of months). |
Not always suited to workers on a low income as many affordable policies only pay 50% of your salary. |
The eligibility criteria for unemployment insurance is:
Unemployment cover is usually funded out of your own pocket (salary) by way of monthly instalments, unless you’re lucky enough to have an employer who offers this insurance as a ‘company benefit’, but this is very rare.
Most employment protection insurance policies will usually last until you either:
Or you can take out cheaper, short-term policies that will only provide cover for one or two years.
Some insurers will include cover for redundancy and others won’t so if you want to make sure you’re specifically covered for redundancy, you must check with your insurer that you are covered before taking out a policy with them.
Yes, income protection cover is synonymous with unemployment insurance and means the same thing: that you are covered if you lose your job through no fault of your own. However, some policies will not automatically include cover for redundancy as standard so check before you commit!
Note: For an accident or illness related claim, you may be asked to attend a medical