Redundancy and Unemployment Insurance Top Ten Tips
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While the recession may be officially over, the economic climate in the UK remains bleak and cutbacks look set to continue for years to come. Many people are now looking for ‘unemployment insurance’ to protect their income in the event of redundancy. This is sold as short-term Income Protection or Lifestyle Protection Insurance. But what do you look for when buying this kind of cover?
For many of us, it can often be very tempting to buy something without properly researching it beforehand. In such cases, you check to see if the product looks more or less right, then you just go ahead and buy it and hope for the best.
If you are a slightly more discerning customer, you may like to do a little skim research before buying. Most people will then opt for a well-known brand, as this gives a measure of assurance that the product they are buying is favoured by other consumers.
This approach is likely to work well enough if you are buying something like a kettle or a TV, as you can make a fairly good assessment of these products simply from their appearance and price. But what about services or insurance products? The quality and value of these products are much harder to assess. Reputation becomes all important, as this is one sure way you can see how satisfied customers are with a product or firm.
Purchasing insurance means buying a promise. Each month money will be debited from your bank account, in return you will just receive some documents. Therefore customer feedback about a service company is far more important. However, the very nature of insurance makes this tricky. This is a consequence of the people who have got the most from their insurance will probably have suffered a major problem or financial disaster in their lives. Paradoxically, the happiest customers are likely to be the ones who paid for their insurance and received nothing (except for peace of mind they are covered) in return!
Coping with Redundancy
Most of us need to work in order to support a family and pay the bills. The majority of people will tailor their lifestyle to suit their income, consequently if their earnings are suddenly withdrawn, they may find themselves in serious financial difficulties.
For many people, particularly first-time buyers and young families, saving a large sum of money each month is impossible. Regular outgoings and living costs consume almost all of their household earnings, so they simply cannot afford to build up a ‘rainy day’ fund.
Unemployment Insurance is an economical alternative for people who are concerned about the impact of losing their job, but have little or no savings pay their bills whilst they are looking for work. Paying £30 to £40 a month for an insurance policy is far easier than saving, say, £12,000 in a contingency fund. Unemployment Insurance to ensure you can still pay your bills in the event of job loss. However, it is vital that you do not rush into making a purchase without inside knowledge. You need to know what to look for to check the policy is right for your needs and to ensure you are buying at the best price.
Top Ten Tips
1. The terms used by insurance companies can be confusing, so it is important that you know exactly what you are looking for. This is more complicated than it seems, as many insurance providers do not always name their products 'Unemployment Insurance' or 'Redundancy Cover'. You will sometimes need to look for 'Lifestyle Protection Insurance', 'short-term Income Protection' or something similar. Confusingly, full term Income Protection Insurance does not cover unemployment, it is actually for long term disablement until retirement. Don’t waste time needlessly researching the wrong product.
2. If keeping up the payments on your mortgage is your main concern, you may want to consider Mortgage Payment Protection Insurance (MPPI), as it is competitively priced and may be the best option to suit your needs. If you do not have a mortgage and just need to cover rent and living costs, you will want short-term Income Protection or Lifestyle Protection.
3. Research on-line is the best place to start to get a broad overview of the kind of policies available and the prices charged. Use comparison websites, as they will give you a good idea of what you should expect to pay, however not all of the leading or cheapest providers are on these websites.
4. When using comparison websites, restrict yourself to the biggest, best known ones. Other supposed comparison websites simply want to sell on your contact details and leave you open to a world of spam mail and junk calls, which is not pleasant for anyone.
5. Specialist providers have the best reputation for offering value for money. Unfortunately, you may not be familiar with the names of these companies. Money Saving Expert recommendations for Mortgage Payment Protection Insurance are also a good option for finding the best value providers.
6. The providers with the lowest premiums are almost always those that are particularly selective about who they cover. If you are fortunate enough to meet their criteria, you can expect to pay a lot less than you would from middle ranking providers. You will find it works the opposite of motor insurance, as the older you are, the more expensive your cover will be.
7. Many providers will not be willing to offer you insurance if you have been made redundant in the last year, have been your job for less than six months, or work for a company which has begun to make cutbacks. You may find that only the more expensive specialist brokers will have access to underwriters willing to cover you, particularly if you work in areas of the economy where job losses are forecast.
8. You are unlikely to be offered instant cover, as providers like to make thorough checks on your situation before they accept your application. They may focus on your employer to see if cutbacks are planned. Equally they might want more information about your medical history is you disclose a health issue and your policy includes accident and sickness cover.
9. A local mortgage broker or an IFA can usually sell you with a suitable insurance policy, but you rarely get a choice of provider. Naturally, you should expect to pay considerably higher premiums because you are relying on their professional expertise and they handle all of the paperwork for you. With this option, it is important you know exactly what your requirements are before you speak to an intermediary. Just bear in mind they are very likely to see any discussion as an opportunity to also sell you a whole host of financial and insurance products you may not be able to afford.
10. To ensure that people don't take out Unemployment Insurance just before their employer publicly announces redundancies, insurers all have an exclusion period (between 90 to 180 days) after your policy starts. This means you can't claim for unemployment that arises during this period. It is intended as an anti-fraud measure, but it is possible for an entirely innocent person to be caught out by a sudden change in their employer's fortune, so it is something you need to be aware of.
Is Unemployment Insurance Worth the Money?
The recession and negative economic climate has meant that the number of people claiming on their Unemployment Insurance policies has rocketed. Also, as jobs are harder to find, i:protect Insurance statistics show that the average length of time people are out of work seeking employment has risen from under 6 months to close to 8 months.
People with Unemployment Insurance usually select around £1,000 as their monthly benefit. This is enough to cover critical bills and household expenditures. These policies also pay for free assistance to help claimants quickly find employment again, including help with their CV, job searching and interview techniques.
On balance, the cover is well worth buying, even though none of us hope we will ever need to claim on it. If you have less than £10,000 in savings, Unemployment Insurance is a sensible option to help you ease the financial pressure of potentially losing your job and being out of work for any length of time. There are numerous testimonials from satisfied customers of i:protect Insurance for example where this cover has; saved them from losing their home; getting into terrible debt; paying them whilst unable to work due to extensive medical treatment.
When taking out their policy these policyholders hoped they would never have to claim. Should they have taken out the maximum £1,500 per month benefit, this would have effectively placed £18,000 at their disposal if they were out of work for a year. These policy claim payments are not taxed and you are not prevented from claiming for any State Benefits to which you are entitled. One of the added bonuses for people who do claim, is the knowledge that because they are receiving enough to pay their critical bills, they can focus on getting another job. More importantly they have the time to get the job they want, rather than being forced to take the first job that comes along due to spiralling debts.
For more information about Unemployment Insurance, short-term Income Protection, Lifestyle Protection Insurance and Mortgage Payment Protection Insurance, please see the Buyer Guide in the @iprotectinsurance pack.