Your employment status is an important consideration when considering unemployment cover as the terms offered and requirements for a claim will sometimes be different for those that are employed compared to those that are self-employed, company directors, contract workers or those employed by a family member.
Employed - Most cover is designed for those employed working 16 hours or more each week. Cover is not normally available if you work less than 16 hours no matter what your employment status.
Self-employed and company directors need to be wary of the terms as some types of unemployment cover can make claiming difficult. Fortunately not all policies are like this as some specialist policies will offer cover for those who run their own business.
Contract workers may have cover but cover is not normally available should the contract naturally come to an end. The claim may therefore be limited to pay until the end of the current contract if its ended prematurely unless you have been contracted to the same company for a period of time where the contract has been renewed a set number of times. This may then with some insures mean you fall with the permanently employed category rather than contract worker resulting in full cover availability.
If you are within the probationary period your job is not classed as permanent therefore may not fit the eligibility criteria to apply with most insurers. However some insurers may allow you to apply and buy a policy but a claim will not be paid if your probationary period ends and a permanent job is not offered. If you are an existing policy holder some insurers may cover you if you had the policy and applied at a time you were classed as permanently employed but again it's worth checking to establish if you could claim so you know where you stand.
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Cover Limits - It is important that you ensure that you don't have cover that overlaps over policies otherwise you maybe paying for cover you don't need as there are normally restrictions on the amount you may protect. Adding cover from other protect plans that pay for the same event those limits depend on the particular policy and can be from 50% to 65% of your gross earned income but some insurers will allow you to insure up to 90% of your net income if the cover is linked to expenses.
You therefore may have more than one policy as long as the cover is not linked to the same expense such as a loan or mortgage.
You should look at the policy terms for each policy and calculate the maximum permitted cover based on income for each and use the lowest figure. This should then give you your combined maximum cover amount.
The Application Process
The application process can follow one of three paths "Full Underwriting" at application stage or "Claim Underwriting" only if you make a claim or "Application Screening" mostly used as a filter process to exclude higher risk applications.
Full Underwriting at application stage. i.e. your application is detailed collecting information on your current and past medical health, includes assessment of your occupation, employer, industry you work in and any hazardous sports you participate. This process is used by very few insurers for unemployment insurance but maybe used if the unemployment cover is an add on option on Permanent Health Insurance. After the assessment the insurer will either, offer terms as quoted "Standard Terms", offer "Revised Terms" this may include an additional premium and/or exclusions for current or past medical problems or any hazardous sports you do, "Postpone Terms" no cover will be offered for a set period or lastly "Decline" to offer any terms as a result of the information obtained in the application process. The benefit of this is you should not get a nasty surprise when you claim as before the cover starts if you will have been notified of any exclusion(s) on your cover prior to commencement.
Claim Underwriting has the benefit that your application will in most cases follow a simple and quick process to place your policy on risk with little if any initial assessment of your health, occupational or sports risks. Only if you make a claim will the insurer obtain more information regarding your state of health and this is normally obtained from your doctor.
Application Screening as above has the benefit that your application will in most cases follow a simple and quick process to place your policy on risk. However certain occupations, industries or health disclosures may result in the insurer imposing revised terms or a decline to cover. It's part way between full underwriting and claim underwriting so may give some reassurance should you need to make a claim.
What does it cover?
You can opt to cover accident and sickness with unemployment or you may have the unemployment cover on its own. Regarding the unemployment aspect the cover will protect you if you are made unemployed as a result of involuntary redundancy. If self employed you may want to consider cover that provides you with financial support if your business stops to trade permanently. To make a claim in those circumstances you need to be signed on as unemployed and evidence on a regular basis that you are actively seeking alternative employment. The self-employed may have other requirements within the policy terms example; notifying the revenue you have ceased to trade.
Some policies linked to expenses may also offer cover from dismissal but this is not a common feature. More common are legal expenses cover, back to work help services career cover that will allow a claim if you have to give up work to look after a sick relative.
When will it pay out?
The "Excess Period" may also be called the "Waiting Period" with some insurers is the optional delay period of time you will need to wait before you will receive your first payment if you make a claim. If you have a policy that has a 12 month benefit period the excess does not reduce the benefit period it just adds a delay before they commence. Choosing a longer excess period may reduce the cost of your unemployment cover.
||Claim Payable From
||First Monthly Benefit Payable
||1st Payment Amount
|30 Days Back to Day 1
||Day 1 after 30 Days
|60 Days Back to Day 1
|| Day 1 after 60 Days
||Chosen Benefit X 2
|30 Day Excess
|| Day 31
|60 Day Excess
|90 Day Excess
|120 Day Excess
Transferring or switching cover
Unemployment Insurance normally has a period where the cover is inactive (Initial Exclusion Period) when you first start the policy. Subject to meeting the switch eligibility requirements you can change policy without cover interruption. Any increase above your current policy may have an inactive period while you serve the Initial Exclusion Period on the increase.
What are you usually not covered for on unemployment cover?
- You resign
- You accept voluntary redundancy
- Your employment was not permanent
- You lose your job because of something you do that breaks the conditions of your employment contract (unless your policy covers dismissal)
- You get notification of redundancy within the initial exclusion period
- You are still employed because you have another job and not eligible for jobseekers allowance or national insurance credits
- You are not a UK resident
- You are not looking for and/or available for work
Initial exclusion period
When you first start your policy you may have an initial period where you will not be covered, this is called the initial exclusion. Should you receive any warnings or notices from your employer stating your job is at risk during this period you will not be covered for this claim event even if the actual unemployment happens outside the exclusion period. Not all policies have an initial exclusion if you are taking on a new mortgage, loan or tenancy or a re-mortgage some insurers will waive the initial exclusion or others may reduce the time period. It is therefore a good idea to get quotes that cover your living expenses as this may have an impact on the cost and the initial exclusion that will apply to your cover.
Will the premium rise?
The premiums and policy terms themselves are not subject to renewal or review by the insurance
company except to the extent that they will rise in proportion to any
rising cover. This is a major advantage as the insurer guaranteed not just the premium but the cover terms so you know exactly how much your cover will cost for the amount you requested for as long as the protection is needed. Only one insurer offers this option for unemployment insurance and you cannot have the cover without the accident and sickness element which offers an unlimited claim duration for sickness or accident. Therefore cost may make the guaranteed premiums option prohibitive especially if you have medical problems or if your occupation manual based. But on the positive side as they assess fully each application they have a extremely high payment record for unemployment claims being 99% in 2013.
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Most unemployment policies offer automatic renewal on a regular basis usually every 12 months. This means they may adjust any aspect of the terms offered including the premium if they suffer higher than expected claims.
Will you still get state support?
Getting financial support if you cannot work will depend on your circumstances such as your household income and savings. Those factors will affect your ability to claim non statutory benefits that are means tested to establish if you need the extra financial assistance on top of any basic state assistance you may be entitled to no matter what saving or income the household has.
Employee's will be eligible and receive Statutory Sick Pay (SSP) if off work sick for 4 or more days in a row (including non-working days) even if you have personal income protection insurance. SSP is paid for a maximum duration of 28 weeks.
Self-employed are not eligible for SSP and will have to apply for Employment and Support Allowance (ESA) formally called incapacity benefit you can claim this from week 13. ESA consists of two parts, Part 1 is paid if you have made enough National Insurance Contributions. Part 2 is income related and is paid if your on a low income.
More information on state financial support and a calculator can give you an indication of what financial help you may receive can be found at www.entitledto.co.uk.
Taxation during claim
With most income protection insurance the benefits are are paid tax-free. The only exception to this rule is when the cover is taken out and tax relief is obtained on the premiums this could result in the benefit being taxable. Typical examples being employer or director schemes with premiums paid by the company.