Job loss insurance cover: Should you opt for it in times of Covid-19?

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Updated: May 19, 2020 7:31 PM

Given the situation right now, most salaried people are worried about getting laid off by their company. A job insurance policy offers financial aid to the policyholder and the family in case the policyholder, being the breadwinner of the family, loses his/her job.

job loss insurance, COVID-19 effect, layoffs in organised sector, salary cut in organised sector, naukari.info, layoff survey 2020, salary of employees, nationwide lockdown, latest news on layoffsWhat can you do to protect yourself in case of job loss?

Nowadays there is no end to bad news, especially owing to COVID-19, lockdown, economic crisis, and so on. Because of this a lot of people are facing pay-cuts and are also being handed the pink slip. Job lay-offs are not limited to any particular sector or industry, no one is safe at the moment. Experts suggest with such uncertainties, insurance is one of the best ways of protecting oneself and one’s family. Most often it is seen that people insure their life, health, assets, and home, but there are also policies that provide cover in case of a job loss.

Given the situation right now, most salaried people are worried about getting laid off by their company. A job insurance policy offers financial aid to the policyholder and the family in case the policyholder, being the breadwinner of the family, loses his/her job. The policyholder, therefore, will be eligible to get compensation for a certain duration if the job loss takes place due to the pre-determined reasons mentioned in the policy.

However, in India, job loss insurance is not provided as a stand-alone insurance policy. It is offered as an add-on cover/rider and usually comes with a health insurance or home insurance policy. Commonly job-loss insurance is available as a rider with polices that cover larger risks such as accident and critical illness. Several insurance products such as critical illness, personal accident cover, etc., have a job loss add-on part linked to them.

Note that most of them have exclusions that make policyholders ineligible for a claim. Adhil Shetty, CEO, BankBazaar, says, “Even though many insurance policies that cover larger risks such as accident and critical illness have a job loss part in-built with the policy, the exclusions of those policies make them almost insignificant to policyholders.”

For instance, a health cover would typically provide insurance against job-loss only in case the policyholder is unable to continue working due to ill-health. Additionally, most job loss insurance schemes have a termination clause attached to them. Hence, if the policyholder’s documentation states that the reasons and circumstances of termination are due to the conditions included in the policy, only then would it be triggered. For instance, most accident-related policies cover for job loss only if the policyholder has a permanent or partial disability or death depending on the nature of the policy.

Among exclusions, some of the most common exclusions which might make a policyholder ineligible for a claim are unemployment/job loss due to voluntary resignation or early retirement, job loss due to pre-existing diseases and health conditions, job loss during the probation period, unemployment due to poor performance, dishonesty, fraud, etc. of the insured, loss of job during the waiting period of the policy, etc. Having said that, if you are among the people looking to opt for income protection plans, then you need to be very clear about the factors that will trigger the policy and the exclusions in the policy.

The benefits in these policies are so minimal that experts suggest it is better to save aggressively instead of opting for a policy just for the job loss portion. In most cases, this is applicable only to salaried individuals and not self-employed.

What can you do to protect yourself in case of job loss?

While offering an insurance cover, insurance companies calculate the possibility of risk. For instance, the risk of a person dying or falling prey to critical illness versus that of losing his/her job. When comparing there is a far greater possibility of the latter happening. Hence, if there was a policy for a job loss, the premium would be extremely high, which would not give the policyholder the required benefit.

Experts suggest one should create a back-up to sail through difficult times. One can start with creating an emergency fund with at least 30 per cent of one’s income and gradually move to have 4-6 months of their expenses in the emergency fund. One can also dedicate short-term investments with flexible liquidity towards an emergency fund.

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