How does Unemployment Insurance work?

Find out more about Unemployment Insurance, to see how you could insure your income against the unexpected job loss or redundancy

Unemployment Insurance works by paying out a tax-free monthly sum, known as a monthly benefit amount, if you lose your job unexpectedly. It’s designed to offer peace of mind, helping you cover any essential financial commitments while you look for work.

The amount of money you receive is based on how much you earn and can be up to 65% of your gross monthly income.

When you purchase Unemployment Insurance, you will be asked a set of simple questions to determine whether or not you are eligible for cover, and to help find the right policy for you.

Eligibility for Unemployment Insurance

To be eligible, you must be aged between 18 and 64, and a permanent resident of the UK, Channel Islands or Isle of Man. When you make a claim, you’ll need to be able to provide ID, proof of residential status, and evidence of your income in the form of payslips or P60s.

It’s also important that you tell us about any financial commitments you have, such as a rent or mortgage agreement, or any monthly payments towards a loan or vehicle.

Unemployment Insurance is available to anyone in full-time employment (more than 16 hours per week) who has been working for the same employer for at least 6 consecutive months.

Before purchasing cover, you must not be aware of any potential or impending redundancies or restructuring in your workplace, or if you are self-employed, any possibility that your business may cease to operate.

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Making an Unemployment Insurance claim

When you make a claim on an Unemployment Insurance policy, you will need to be registered with a local Job Centre and obtain a Job Seeker’s Agreement. While you’re unemployed, you’ll be required to prove that you are actively seeking alternative work, and be able to provide evidence of your job search to the Claims Team.

Just like travel or home insurance, there are a few terms associated with Unemployment Insurance that it’s important to be aware of if you’re thinking about buying a policy. One that often confuses people is the Initial Exclusion Period (IEP), but fortunately this isn’t as complicated as it might sound.

Each unemployment policy comes with an Initial Exclusion Period, which is the amount of time that must have passed before you can make a claim. The length of the Initial Exclusion Period depends on the individual policy, but ranges from 60-120 days.

When you purchase Unemployment Insurance, be sure to make a note of the Initial Exclusion Period because if you are made aware of your job being made redundant during this time, your claim will not be valid.

The purpose of the Initial Exclusion Period is to safeguard the insurer against customers taking out and claiming on Unemployment Insurance straight away, when they are already aware that they will be made redundant in the near future.

As the name suggests, this exclusion only applies for the initial period immediately after you take out a policy, and is a one-off, which means that once this time has elapsed, you are free to make a claim.

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How long do I have to wait for my claim to be paid?

Another term used in Unemployment Insurance is the excess period – also known as a deferred period or waiting period – which simply refers to how long you have to wait before you receive payment after making a claim.

When purchasing a policy, you’ll be asked to choose an excess period lasting 30, 60, 90 or 120 days. There’s also a ‘back to day 1’ option, which will pay out in arrears from the first day of your claim.

When choosing your excess period, you’ll need to think carefully about how long you could support yourself if your regular income were to stop unexpectedly. Most people are confident that they would be able to survive for the first month, and so opt for a 30 day excess.

The shorter the excess period, the higher the premium will be (how much you pay each month), so go for one that’s both affordable and suited to your financial circumstances. This is especially important because most insurers will require you to keep paying the monthly premiums during your claim period.

If you already have Unemployment Insurance, but would like to transfer your policy, it’s sometimes possible to waive the excess period (known as an excess waiver). Not all insurers offer this option, so it’s worth checking before you make a final transfer.

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