Sample this: In one of India’s biggest-ever layoffs, engineering major Larsen & Toubro (L&T) shed 14,000 employees across businesses during the first half of fiscal 2017. Now, according to media reports, some other companies ranging from Snapdeal to Microsoft are also planning to trim their workforce over the coming months.
That is not all. A study by the All India Manufacturers’ Organisation (AIMO), which represents over 3 lakh micro, small, medium and large-scale industries engaged in manufacturing and export activities, reveals that micro and small-scale industries suffered 35 per cent job losses and a 50 per cent dip in revenue in the first 34 days of the cash ban, while a 60 per cent drop in employment and a 55 per cent loss in revenue is likely before March 2017.
True, job security is one of the main attractions of a dream job. However, with the ups and down in the job market, you are always living in the fear of losing your precious job, particularly if you are a private sector employee. And with layoffs increasingly looming on the horizon, many employees these days are opting for a job-loss cover to alleviate the pain of losing their job.
What is job-loss insurance?
Job-loss insurance, also known as income insurance, can be described as a short-term loan protection solution which helps pay your loan EMIs during a short period in which you’ve lost your employment under a fixed set of circumstances.
Thus, a job-loss insurance plan basically covers risk for payment of liabilities in case of a job loss, but only applies when you are fired from the job or get a pink slip. This insurance works as an add-on to critical illness plans, personal accidental plans, or loan protection plans, and can’t be bought separately.
What does it cover and what are exclusions?
In case of a job loss, your three biggest EMIs where the loan eligibility is 50% of your monthly income can be covered. Not just a job loss, some plans also cover losses caused due to accidental injuries. However, these injuries necessarily mean disablement to certain degree or death due to an accident.
“The plan doesn’t cover self-employed or unemployed persons, those who’ve resigned or taken retirement, employees under probation, or employees who’ve been terminated or suspended due to poor performance. It also does not cover a job loss in case of an existing illness,” says Adhil Shetty, CEO, BankBazaar.com.
Any termination, dismissal, temporary suspension or retrenchment from employment of the insured being attributed to any dishonesty or fraud or poor performance on the part of the insured or his willful violation of any rules of the employer or laws for the time being in force or any disciplinary action against the insured by the employer is not covered.
“Income insurance plans, in fact, are bundled with multi-year large loans, typically with home loans. You need to pay a nominal sum to get this add on feature. As such, these policies do not cover loss of job due to under performance, retirement and self resignation. The insurers typically pay your 3 home loan EMIs when the cover kicks in,” says Dhruv Sarin, Head of Health Insurance, Policybazaar.com.
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Which are the insurers offering this cover in India?
Job insurance is the latest in the insurance industry in India. However, stand-alone job insurance is not prevalent in the insurance industry here. Some of the plans that are coupled with job insurance are:
Home Suraksha Plan by HDFC Ergo
Safe Loan Shield by Royal Sundaram
Secure Mind by ICICI Lombard
What is the premium amount and the period of cover?
This is a short-term cover of up to five years, which can be further renewed. The premium may be a small percentage of the overall sum assured of the master policy that it is part of. You also have the choice of selecting a job insurance cover based on the probability of job loss and the premium amount.
Should you take this cover?
If your employment status is fragile, and if you have financial obligations such as home loan repayments which may consume a sizeable part of your income, you may consider having a job-loss insurance.
“The insurance takes care of your EMI payments for a short while as you search for another job. However, such an arrangement may not be particularly useful if you have an emergency fund to carry you through the job loss. Also, this insurance plan has a short tenure of five years in which only one claim can be made. The insurance needs to be availed if you are a salaried person, and it may come into effect only one to three months after you’ve availed it,” says Shetty.
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Thus, the plan is most useful if your EMIs are large and monthly expenses are fairly high. However, the product has its own set of limitations. “Despite having a cover for income replacement, it might not kick in. The reality remains that not many people in India are fired by their employers or are handed pink slips. The lay-off process is typically avoided and has an image of social stigma attached to it. Employees are mostly pressurized to resign except in the situation of Mergers and Acquisitions (M&As). Overall, if you want to park your risks outside, then this add on feature is good enough to cover you for this rare scenario,” says Sarin.