Share this guide:
Last updated: 24 March 2020
Nothing in life is ever certain. You may be safe in your position at work in one moment and in the next, you could be without a job. This is where unemployment insurance can give you that added peace of mind knowing that you will still be able to pay your bills even if you do not have an income. It will also keep you afloat while you look for a new job – which can take the pressure off of you as you search for a position that promises stability and a happy working environment.
What is unemployment insurance?
Unemployment insurance is a form of income protection
that pays out if you are suddenly unable to work or the company that you work for dissolves and can no longer sustain you. It will help you, as an employee who has been terminated, by tiding you over financially for a period of time while you search for another job.
This type of policy is often coupled with accident and sickness insurance, although some providers do offer it as a stand-alone product.
How does it work?
If you have purchased an unemployment insurance policy and you suddenly find yourself without work and a stable income, then you will qualify for a tax-free monthly income as per the terms of your policy.
You will start to receive your pay-outs after you’ve been off work for a pre-agreed waiting period (often referred to as a deferred period). The longer the deferred period is, the lower your premiums will be (you can keep this in mind when agreeing to terms that will suit your budget and your situation).
Another thing you need to consider when taking out such a policy is that you will not be able to make a claim immediately. Typically, there will be an exclusion period of between one and six months. This is because the insurance providers do not want individuals to abuse the service and take out policies when they know they are going to be made redundant.
You will continue to receive your pay-outs until you find new employment or for however long the agreed-upon term lasts (which is usually no more than 12 months).
To qualify for this type of unemployment protection, you will need to meet the following criteria:
- You will need to have held your current position at work for a minimum of 6 months
- You will need to fall within a certain age bracket (which may vary between providers)
- You may not qualify for unemployment insurance if your job is a part-time position
Why do I need unemployment insurance?
As you reach adulthood, then thinking ahead becomes important. One thing you will have to ask yourself is how you would manage if you or your partner lost an income that you rely on? When you have things such as mortgages, cars, and loans to pay off, then it’s good to have a plan B. This way, you will have the help you will need to work through the financial strains while you find new work to substitute the income you had become accustomed to.
For example, did you know that a quarter of the British working population do not have any savings? Even if money has been set aside, this is often not enough to cover the cost of living.
That’s why many people choose to purchase unemployment insurance. For a small monthly premium, one can have a safety net in place.
How much does unemployment insurance cost?
The cost of unemployment insurance varies between providers. Your premiums will be determined by your personal risk factors as well as how much you will need to be paid out to you per month during your period of unemployment.
Because the cost of unemployment insurance can vary, it’s important that you shop around for quotes that will best suit your budget.
When shopping around, you may want to pay attention to the following terms that may affect your premiums and pay-out over the years:
This refers to pay-outs and premiums that are fixed for the term of your unemployment insurance policy. This type of cover is more affordable but it does not cover the cost of inflation.
With this type of cover, your pay-out and premiums will increase annually, in line with inflation.
Reviewable premiums refer to premiums that remain fixed for an agreed upon term (such as 10 years). Once the term has elapsed, you can review your policy and adjust the income pay-out.
How to Compare Unemployment Insurance
The easiest way to compare the different types of unemployment insurance available is to use our comparison service. All you will need to do is fill in a few details about yourself and then we’ll do the shopping for you. We will conveniently list your quotes in price order, giving you options from the best unemployment insurance providers servicing the UK.
Remember – when you compare income protection insurance
quotes, don’t just consider the price. It’s important that you apply for the level of cover you need at a monthly premium you can afford.