Most people have a form of insurance in place at one time or another, whether it’s to cover the contents of their home against a break-in, or a straightforward policy for their car in case they have an accident. But other people have more personal forms of protection, including unemployment insurance, which is a simple policy capable of providing somebody with regular financial benefits in the event they end up out of work through involuntary redundancy.
While there are statutory redundancy requirements and state benefits available, neither of these may go very far and in particular may not cover some of the regular commitments that many households have to meet. For example, a basic redundancy package may only last weeks or even days, meaning somebody has to either find a job very quickly indeed or face considerable financial difficulty. Unemployment benefits like job seeker’s allowance are not designed to help somebody keep up with things like mortgages, and for some people are often less than £100 per week.
This means those who do not have something like very considerable savings or investment interests to rely on, could be faced with serious economic difficulty in a short space of time after being made redundant. This means an unemployment cover plan as a precaution can be a very wise move, as it supplies somebody with regular and consistent tax-free payments after a successful claim.
This kind of cover is available from a wide range of insurance companies, and not just the ones on the high street. Although many people may never have heard of it, it is very simple and can be extremely good value as premiums can be just a few pounds per £100 worth of protection if bought from a standalone provider.
When will benefits pay out?
All someone has to do after having been made redundant involuntarily is make a claim to the insurance company who supplied them the deal. Subject to this being successful, they must then undergo a waiting period of around a month all the way up to 90 days on some deals before the company starts to pay them an agreed monthly sum. This arrives straight into their account and continues for 12 to 24 months, depending on the deal they have bought, or until they are back in work again.
Payout periods vary, and those taking out a deal with a payout period of 12 months will find it is probably cheaper than a policy from the same company which pays out for 24 months. Of course, the higher amount you would get per month after a successful claim, the higher the premium might be. This means it is important to make an accurate assessment of what you would need per month, as you may end up either with too little or with a higher premium for an amount which is more than you really need.
Unemployment insurance is not designed to replace your income completely after redundancy, but to supply you with a reasonable amount which can go towards some of your essential costs and expenses. In fact most insurance companies simply employ a maximum monthly amount, beyond which they will not insure you. However, it is reasonable to expect a decent slice of your current income, perhaps 50 per cent.
Note that unemployment protection only pays out:
• if you are made redundant involuntarily. This means you can’t claim if you end up without your income because you have been sacked from a job or because you have accepted an offer of redundancy.
• it also does not apply if you resign.
Unemployment insurance is also different to broader payment protection plans which might cover your regular repayments on one specific loan, or might simply protect your ability to keep up with your mortgage. These and other plans like accident sickness unemployment insurance, as they can sometimes be known, provide support in the event you end up without your income due to illness or injury after an accident.
ASU insurance
Unemployment protection only pays out if you are made redundant, but you can often get some extras attached to your policy, meaning for a higher premium your insurance company might agree to pay out if you end up out of work due to illness or accident. This is why the policies can sometimes be known as accident, sickness and unemployment (ASU) insurance.
It’s also important to differentiate unemployment insurance with more general payment protection insurance deals, which are sometimes attached to loans by borrowing providers. Although it is a payment protection insurance product, it is not the same as a cover plan which pays out for illness, injury, or redundancy and is designed to only provide you with support for a mortgage or with a specific credit card or loan.
Many people have found a redundancy plan important not just financially but also psychologically. As statutory redundancy packages and job seeker’s allowance benefits are limited, people often find an insurance plan like this is a comfort to them, as they know they are going to get a viable level of benefit until they are working again. Of course in the long run this can also help to safeguard your credit rating as it provides you with help towards meeting some of your loan and credit commitments should you have some. It also means you can reduce or eliminate the chances of repossession because you are entitled to use some of it to keep up with mortgage repayments until you are working again as well.
Unemployment insurance is therefore a very handy safety net which can fill the considerable gap between what state rules provide and what you might really need to keep going properly until you are working and earning for yourself again.
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