Unemployment Insurance - Pros and Cons
Unemployment Cover, Financial Issues and Paying Household Bills
Jan 28, 2009
According to the Office for National Statistics, the number of people out of work has risen to 1.825 million. This is the highest number of unemployed since November 1997. Vicky Redwood of Capital Economics said that the true current situation was already much worse than the new figures suggested and estimated that the total would reach 3.3 million by 2010.
Unemployment cover consists of three main insurance products, including mortgage payment protection, income protection and payment protection. In the event of someone becoming involuntarily unemployed, these forms of unemployment insurance pay out after a minimum of 30 days for a 12-month period.
Advantages of Unemployment Insurance
- Tax free income. Unemployment insurance provides a tax-free income when a person becomes involuntarily unemployed. This helps to prevent financial issues by paying the mortgage, energy bills and other miscellaneous household bills;
- Peace-of-mind. In uncertain times, such as a recession, having unemployment cover can help people feel more relaxed with regard to paying bills;
- Deferred period. It is possible to defer payment under an unemployment policy so that it pays out after 30, 60 or 90 days. The longer the deferred period, the cheaper the unemployment cover;
- Can claim more than once on a policy. If someone makes a claim for several months and returns to work only to lose their job yet again, redundancy cover will pay out. This is based on the proviso that the monthly premiums continue to be paid by the insured.
Disadvantages of Unemployment Insurance
- Varying costs. The monthly cost of unemployment insurance premiums vary considerably between lenders. The majority of people buy their unemployment insurance when they get a mortgage, which represents the most expensive way to buy unemployment cover;
- Involuntary unemployment. Redundancy insurance only covers involuntary unemployment. Should someone leave voluntarily or be dismissed, no insurance cover will be paid out;
- No cover. Unemployment insurance doesn't cover certain categories of worker, such as those aged over 65 and part-time workers. It has been known for unemployment cover to be sold-on when the insured would never be able to claim under the T&C's of the policy;
- Increasingly difficult to get stand-alone unemployment cover. Emma Walker, of price comparison website MoneySupermarket.com, stated "Many of the biggest suppliers of unemployment cover have withdrawn their policies from the market recently."
- Doesn't pay out straight after joining. It is usually necessary to make about 6 months payments before someone can claim under an unemployment insurance policy;
- Possible price increases. As levels of unemployment rise, there is a strong possibility that premiums will also follow suit;
Always use an online unemployment cover price checker to identify the best prices. There are a number of independent brokers of redundancy insurance who will be able to trawl the market to secure the best price. Never buy directly from a tied mortgage lender as it is available considerably cheaper elsewhere.
Those with young families or mortgages should also consider income protection insurance or mortgage insurance in the event of ill health or involuntary redundancy. People that are concerned about the future may also be interested in saving for uncertainty by starting a cash ISA.
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