What is an Unemployment Protection Insurance Policy and how does it work?

Here we look at what an unemployment protection insurance policy is and how it works. Being made involuntarily redundant can affect any one of us, especially in an uncertain economic climate. If it happened to you, would you be able to cope financially? Even if you were fortunate enough to qualify for redundancy pay, you could find that the money you receive soon dwindles away as you pay for your mortgage / rent and other outgoings. It really doesn’t bear thinking about. However, the good news is that something that you can put in place to protect you from the financial fall out of involuntary redundancy - an unemployment protection insurance policy.

What does an unemployment protection insurance policy do?

Also known as payment protection insurance (PPI) or unemployment cover, the policy pays out a monthly tax free sum for typically 12 months, in the event that you are made involuntarily unemployed, such as via redundancy. Some providers will pay out the benefits for up to 24 months, but this will obviously attract a higher premium.

Of course, should you find alternative employment within the benefits period, then the payments will cease.

The income you receive will enable you to keep your head above water at an already stressful time, leaving you free to concentrate on finding a new job without having to worry about servicing your bills.

You can, for an additional fee, also add extra cover on to your unemployment protection insurance policy to protect you against becoming unable to work due to accident or sickness (incapacity). This can be known as accident, sickness and unemployment insurance (or ASU insurance) and works in the same way. ie should you become too ill to work, you will receive a monthly amount for a set period, allowing you to recover without financial worry.

When can I make a claim?

You can make a claim on your unemployment protection insurance policy usually 30, 60 or 90 days after you are made involuntarily redundant, with some providers generously back dating any payments to the first day of unemployment. Policy features and benefits do vary among the providers, so opting for a policy with a 30 day waiting period may be a more viable option than having a 90 day waiting period as with the latter this means, in effect, you would not have a income for three months. 

How much will it cost?

As the policy terms and conditions vary, so can the cost – and quite dramatically too. Many people buy unemployment cover when they take out some form of borrowing such as loan, mortgage or credit card. However, this can often be the most expensive way to buy unemployment protection insurance as well as you being limited to buying from your loan provider.

However, this has been recognised within the industry and, following an in-depth review by the Competition Commission, consumers are more aware of the choices they have when buying payment protection insurance. Certainly, buying from an independent provider of protection insurance can often save you quite a substantial amount of money. Some standalone providers offer an unemployment protection insurance policy costing from just a few pounds a month for every £100 worth of cover required, which is a small price to pay for peace of mind.

So, if the thought of losing your job is making you worry, then why not consider taking out an unemployment protection insurance policy?