What does Unemployment Insurance cover?

Find out more about Unemployment Insurance, to see how you could insure your income against the unexpected.

If you’ve never considered Unemployment Insurance before, it’s a good idea to think carefully about your finances, and how you’d support yourself and your family without a regular wage.

Losing a job is one life’s most stressful situations, and of course, in an ideal world, it wouldn’t affect any of us. But in our increasingly unpredictable economic climate, job security is no longer a guarantee.

No matter how dedicated you are, or how hard you work, sometimes things happen that are beyond your control. Perhaps the company you work for loses a contract and needs to downsize or is affected by a global economic downturn. Maybe you run our own business and are forced to close because your profit isn’t enough to cover all costs. Either way, you could find yourself with loss of income due to unemployment and unsure how you’ll meet even the most basic outgoings.

Whether you work for a large multi-national company, or are self-employed and running a small local business, a regular income is probably something you couldn’t live without. That’s why, when it comes to making sure you’re financially secure, there really is no better option than Unemployment Insurance.

Unemployment Insurance – a form of Income Protection Insurance

Offering peace of mind in form of income protection, this type of insurance covers you for any unforeseen unemployment, redundancy or job loss. As long as you can prove that you lost your job through no fault of your own, and you haven’t accepted any kind of voluntary redundancy package, you could be eligible to claim on Unemployment Insurance.

Covering a percentage of your gross monthly income, Unemployment Insurance acts as your own personal safety net; a bit like the life jacket under your seat on an aeroplane. You hope you won’t need to use it, but you’re very glad it’s there.

When purchasing Unemployment Insurance, you’ll be asked to choose a benefit amount, which means how much money you’d want to receive each month if you became unemployed. This can be up to 65% of your gross monthly income, but you don’t have to opt for the maximum amount available.

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How much does Unemployment Insurance pay?

The amount you choose should be just enough to cover any essential financial commitments such as rent or mortgage repayments, food and household bills. The monthly benefit is tax-free, and will be paid straight into your bank account, so you are free to spend it however you wish.

Some people use the monthly payments to cover their mortgage, while others spend the money on living costs as a way of making sure they don’t fall behind on things like council tax and other essential bills.

When you buy Unemployment Insurance, you’ll need to get past what’s called an Initial Exclusion Period. Depending on the individual policy, this can be either 60, 90 or 120 days, and it just refers to the amount of time you need to wait before you’re eligible to claim. The Initial Exclusion period is in place to prevent people purchasing a policy when they already know that their job is at risk and making a claim straight away. It is also important to bear in mind that if you are made aware of your unemployment during this initial exclusion period, you will not be eligible to make a claim.

Unemployment Insurance policies also come with an excess period, lasting 30, 60, 90 or 120 days. Chosen by you at the time of purchase, this is the amount of time you need to be unemployed for before you’ll receive the first payment.

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Unemployment Insurance – how can a specialist advisor help?

When you speak to one of our advisors, they will ask how long you’d be able to support yourself for if you became unemployed, so it’s a good idea to think carefully about this before you buy a policy. Start by working out your essential monthly outgoings, and take into account any savings you have, to get a good estimate.

Many people tend to be confident that they could survive without payment for the first month, and so choose a 30 day excess period, but you should select the one that’s right for you. If you need your payments to start straight away, the ‘back to day 1’ option will pay you in arrears, right from the first day of your claim, if you are unemployed for 30 continuous days. As a rule, the shorter the excess period, the higher the monthly premium will be, so it’s important to bear this in mind when customising your policy.

For more information about Unemployment Insurance, or to purchase cover, we recommend speaking to an advisor. They’ll take into account your financial circumstances to help find the policy most suited to you.

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