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Job loss insurance – Your cover for potential pink slips

28 Apr 2015 |By: Team Finalaya

Job loss insurance

Some of the pains associated with growing up cannot be averted.  Gone are the days when jobs remain secure as long as the employee wants. ‘Pink slips’ or marching orders have become the order of the day and this could be handed out to employees for a number of reasons. Mergers and acquisitions for instance is one among the major reasons that would trigger the pink slips.  While some employers may be considerate in granting a certain period of time or financial compensation in lieu thereof for the employee to find another job,  not many employees are fortunate to be in that situation.  Thankfully, insurance companies have reckoned the enormity of the situation and chipped in with a solution – Job loss insurance.

How can job loss insurance help

Although job loss insurance is offered as a straight forward option in some of the Western countries, in India, most insurers are now offering this only  as an  add on option.  Therefore, to benefit from job loss insurance, it is incumbent that you subscribe to another cover, mostly health related.  This cover is mainly targeted at safeguarding the employee’s home loan commitments for a period of 3 months after the pink slip or job loss.  It is expected that the employee will find another job within 3 months, at least in most instances.

Why the insurance company will pay only 3 EMIs

Home loan EMIs generally take away a chunk of the employee’s earnings and can go up to 50% of the take home pay.  In the absence of regular monthly payment of the EMIs, the home loan would move into the NPA category at the expiry of 90 days. Therefore, most insurance companies have reckoned that this is the maximum payout required for the job loss cover.

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What you need to watch out for

While subscribing for this type of add on covers, care should be exercised to understand precisely what you are paying for.  Most insurers would obviously exempt termination of employment on grounds of dishonesty, criminal acts etc. Some insurers, encouraged by the response to the job loss policy as it exists now, are considering bringing in voluntary resignations also within the ambit of the policy.  Given that many employees are required to give 3 months notice before quitting and  prospective employers may not be willing to wait out this long time frame, job loss cover  for voluntary resignations can become an attractive option for many.

However, you should also be aware that the job loss rider that comes normally with another health policy is beneficial only when you have a hefty EMI commitment to meet.  Therefore, unless you own a home and have significant EMIs to be paid every month, you are better off without the job loss rider and the additional cost of the policy attached to it.  You would also do well to weigh the job loss policy rider against a personal accident cover for say Rs.5 lakhs that should cost about Rs.225 per year.

Let us know what you think of the article by commenting below.

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