Do you need to insure your job?

To alleviate the fear of job loss, it is prudent to understand and analyse the extent of the coverage and cost-benefit of job insurance. Do you need one? Find out here.

Why do you need to insurance your job?

Uncertainties are a part of life. Today you might be blissful in your dream job; tomorrow you may learn that you have been handed the dreaded pink slip. Take the case of engineering major Larsen and Toubro (L&T), which laid off 14,000 employees in the first half of 2017. Even the Indian IT sector, considered one of the greatest employment generators in the country, had fired more than 56,000 employees by the end of 2017. If such statistics are anything to go by, ‘job security’ is a thing of the past.

To alleviate the fear of job loss, insurers have now started offering job insurance. Should you get one? Let’s find out.

What is job insurance?

Job insurance is a new offering in the Indian insurance industry. It’s not available as an independent product yet; it has to be purchased as an add-on to either a home loan protection plan or a critical illness cover. Typically, the premium for job insurance is 3-5 percent of the total coverage over and above the premium that you would pay for the master policy.

 Do you need to insure your job?

What are the benefits?

The benefit of job insurance kicks in when you’re repaying a home loan and suffer a sudden job loss. The insurance cover pays your EMI for three months. Within this timeframe, you’re expected to find a new job. The key thing to bear in mind before opting for this cover is the reason for your job loss, which needs to be stated explicitly while making a claim. This cover is only beneficial if an employee is laid off due to revamp in company structure, merger/acquisition, or bankruptcy.

When can your job insurance be ineffective?

You will need to provide written proof from the company regarding the reason for the job loss. This crucial piece of documentation is needed to make a job insurance claim. Such a document may be hard to obtain as companies typically avoid a layoff process. In case of a merger or acquisition, for instance, an employee may be forced to resign rather than being laid off. In such cases, a job insurance cover is rendered ineffective.

Are there any disadvantages?

It is important to note that job insurance is in a nascent stage at the moment. Some creases that remain need to be ironed out, which is likely to happen over time. But currently, there are a few limitations hobbling this new insurance variant, such as:

  1. If the job insurance cover is invoked, the insured individual receives only 2 percent of the sum insured each month for a period of three months.
  2. The insurance tenure is restricted to five years only.
  3. It is not available as an individual cover; it’s sold as part of a critical illness cover or a home loan protection plan.
  4. The benefits of job insurance can’t be activated if you’re self-employed.
  5. The benefits won’t reach individuals who are unemployed due to the voluntary resignation, asked to leave due to underperformance or fraud, are on probation, or seek voluntary retirement.

Should one opt for a job insurance cover?

Job insurance, as is evident, is not a full-fledged product yet. Before opting for such a cover, it is prudent to understand the extent of the coverage and perform a cost-benefit analysis. Do not forget to ask the insurer some crucial questions, such as:

  • Am I eligible for a claim if I’m offered a severance package?
  • What happens if I’m fired and don’t have any written documentation?

Chances are the answers to these questions are not going to be satisfactory. You must, therefore, decide whether you will be better off building an emergency fund through regular savings that can take care of 6-12 months’ living expenses, or pay an extra premium to protect yourself in the event of a job loss. This will help you decide whether a job cover can help you.

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