Taking Cover . Should you go for a job-loss insurance policy?

In the uncertain times such as the present, it pays to be prepared for an unexpected job loss.

Replacing your previous pay cheque may not be possible, but job loss insurance covers can provide some income support — to the extent of your loan EMI, for a few months, and thus give you a breather. However, before you buy a job- loss insurance policy, read the facts to avoid any surprises later.

Policybazaar.com recently launched a separate vertical to introduce job-loss insurance cover. It lists policies available in the market that offer protection against loss of job due to retrenchment or accidental disability.

Less-talked- about facts

Most of the policies listed in Policybazaar under job-loss insurance are for loss of job due to a disability following an accident. These policies provide a weekly benefit of ₹ 5,000 for 100/104 weeks of disability.

Only three insurers — Shriram General, Universal Sompo General and SBI General — offer cover for loss of job due to retrenchment. Take note that these are not ‘loss of income’ policies but ‘EMI protection’ policies — they cover a loan EMI amount for three months after loss of job. So, unless you have an outstanding loan, you can’t get this policy.

Reasons for dismissal/lay-off that is acceptable under these policies include termination following closure of the company due to poor financial condition or merger/acquisition. They exclude termination due to fraud/dis-honesty/poor performance.

The policy doesn’t pay if unemployment arises due to resignation or retirement or due to health conditions. Further, all policies come with a 90-day waiting period and do not cover contract employees and the self-employed.

For individuals who have a ₹50,000 EMI running for 15-20 years, the annual premium comes to ₹ 7,000-8,000 in the case of Shriram General and Universal Sompo General. So, the insurers ideally charge a premium of 5 per cent on the value of the protection offered — this is not expensive. However, SBI General’s premium for the same value EMI and cover, is high at ₹ 23,300.

Should you go for it?

The ifs and buts in the policy make the ‘EMI protection’ cover unattractive. That said, these covers can be useful when there are mass lay-offs like in the case of Jet Airways, Kingfisher Airlines or, recently, Karvy Stock Broking, where the reason for the loss of job was clear and public.

However, there can be circumstances where you can’t prove that your were removed from the job for no mistake of yours. The, it will be difficult to claim the policy. Employers generally place the blame on a workers’ poor performance for lay-offs. In such cases there may be no termination letter, or even if there is one, it may not specify the reason for the pink slip. Also, there is no clarity on whether an insurer will pay the benefits, if the employee is given notice before termination.

Products that cover loss of job due to accidental disability and offer a weekly income benefit are cheaper than EMI protection covers. Remember that in these policies, insurers place a cap on the weekly benefit they offer at a percentage of the individual’s monthly pay. The benefit under the policy is given only if one’s condition is so bad that he/she can’t report to work for at least one month.

If you are worried about loss of job due to accident-led disability, you can consider buying accident riders with life insurance. You can also go for standalone personal accident policies, but these may work out to be expensive if you look for high sum insured (SI). These policies pay the full SI on death of the insured due to an accident. The compensation will be partial if it is a permanent total/partial disability; in the case of partial disability, the payment will be 25-50 per cent of the S1.

Contingency fund

If you fear job loss, we suggest you build an emergency fund. Every month, set aside at least 30 per cent of your salary and slowly build a kitty of 5-6 months’ salary. Keep this cash in your bank account or in deposits. Also, try to avoid fresh EMIs or unnecesary splurging and renew your health insurance policy if you have missed it.