Home > Insurance Explained > Types of Personal Insurance

Unemployment Insurance

In some countries (such as the USA), unemployment cover is a national scheme designed to supply partial wage replacement and other benefits to unemployed workers as they actively look for work. In Australia specific unemployment insurance policies exist even though the federal government does provide unemployment benefits through centrelink. Many individuals choose to take it out to protect them from unemployment as centrelink benefits will not be of much assistance in repaying a mortgage or taking care of a large family.

It should be noted that there is a bit of cross over with some other policies depending on the reason for unemployment. For example an income protection policy will protect you in case of specific illness or injury. While a trauma policy generally covers you for specific traumatic illnesses such as cancer or heart attack / stroke etc. Mortgage holders can get cover in the event of default with a mortgage policy. It won't pay for your food or car bills, but it can help you stave off foreclosure in the event that you lose your job.

Unemployment cover is generally a monthly payment that covers all or part of your income in the event of involuntary unemployment or redundancy.

 

Who is a potential candidate ?

A helpful way to assess your need for unemployment protection is to consider how long you could survive without your current main source of work income. To get a clear insight into how long this might be, you need to have a good idea of your current monthly expenses including such things as rent/mortgage, food, clothes, child expenses, cars, and other financial obligations (such as loan repayments). People with highly specialized skill sets may also want to consider an unemployment policy as it may take a while to find a suitable position. There are no exact answers except that it should be at a level you are comfortable with. Some advisors advocate savings of at least 6 months, while many people only have 4-12 weeks (or even less)worth of savings. Single people living at home will most likely not be suitable candidates for this type of insurance.

What typically does it cover?

Generally, unemployment cover pays an income stream to the unemployed person for a period no longer than 6 months. That income is calculated as a percentage of your previous income over the past year. The exact percentage is determined by you and your insurance company/ broker in determining your level of cover. Many policies have a waiting period of 90 days before you can make a claim. So you will need at least 3 months worth of savings cover to even be in this position in the first place. The policies typically cover redundancy or involuntary unemployment. Also make sure to check your excess as you may need to pay a fee just to receive your benefits.

What typically does it not cover?

Unemployment plans do not cover general unemployment under any circumstances. You must have lost your job involuntarily to be able to qualify. If you left your place of employment by your own accord, unemployment policies typically will not cover you. You will have to have detailed records to show that this is the case. Additionally you must be out of work for at least 90 days in most cases.

Additional coverage that policy holders might take out in this area

Complimentary policies include ,income protection, trauma and mortgage insurance. As discussed earlier, income protection and trauma can cover sickness and major medical events respectively and mortgage insurance can cover you in the event of default of your home loan.

Additional coverage typically takes the form of a lower excess , higher payout option. Which of course increases your premiums.

What will it typically cost?

It all depends of your level of cover and your occupational risk profile. Some job occupations have high rates of redundancy for example. Typically a policy will cost anywhere from under a $100 per month to a few hundred dollars per moth.


Other Types of Cover