Unemployment Insurance

What Does Unemployment Insurance Cover?

Also known as Redundancy Insurance, it’s designed to provide short-term protection (for either 12, 18 or 24 months) if you’re made redundant.

The policy will start to pay out after your chosen deferred period and will continue to pay out until you either find a new job or the claims period has expired.

You can opt to include Accident and Sickness Insurance in your plan to ensure you are financially protected should you lose your income due to ill health or an accident as well as redundancy.

Unemployment Insurance Exclusions

As with any insurance product, there are some exclusions Unemployment Insurance has that you need to be aware of. The most common exclusions are detailed below:

• You have become voluntarily unemployed
• You have chosen to take a career break
• You become unemployed due to your own misconduct, fraud or dishonesty
• Your unemployment is the result of industrial action

It is only designed to cover instances of redundancy that are forced. You can’t, for instance, take voluntary redundancy and make a claim on such a policy as you’ve put yourself out of a job.

You must also have no knowledge, or potential knowledge, of any upcoming redundancies in your department / company when you take out this insurance. If you’ve been made aware that you could be laid off, this product is unlikely to work for you.

There’s also the stipulation in most policies that you cannot have been put out of work through your own actions (e.g. you were fired for gross incompetence or the like).

The redundancy must be no fault of your own, come with no prior warning and you can’t put yourself out of work and claim on this type of policy (although certain insurers may offer an exception in the case that you have to quit your job to become a carer).

Unemployed Cover for Self Employed and Company Directors

These general exclusions make Unemployment Insurance a particularly poor fit for company directors and the self-employed, who have much more control over their own jobs.

It’s very hard to prove that you were put out of work through no fault of your own when you work as your own boss. Such workers should think carefully or consult with an expert before taking out this kind of protection.

Do I Need Unemployment Insurance?

While the labour market has recovered well since the financial crisis, the aftermath of the 2008/09 crash lingered in unemployment figures for some time.

UK unemployment peaked at 8.5% in the 3 months to November 2011. This equates to 2.71 million people out of work.

We never know what’s around the corner, which is why it may be worth considering Unemployment Insurance as an employed worker in case the worst should happen and you find yourself out of work.

A recent Drewberry survey found that nearly 2 in 5 people had no more than £1,000 in cash savings to fall back on if they were out of work. How long would this realistically last if you needed to draw on it because you’d been made redundant?

UK Cash Savings

What About Unemployment Benefits?

The main UK unemployment benefit used to be Jobseekers Allowance, but this has been replaced with Universal Credit for most people.

This starts at £317.82 per month if you’re single and over the age of 25. You can get more than this (additional amounts can be added on to this ‘base’ figure if you have children or are responsible for paying housing costs, for example) depending on your circumstances.

However, Universal Credit is paid in arrears. This means after you apply it will usually take 5 weeks to get your first payment.

While you can ask for an advance payment if you don’t think you’ll have enough money to live on while you wait, this will be dependent on your circumstances and isn’t guaranteed. As such, you need to be aware that you could need to live off your own resources for some time before receiving any benefits.

Even once you receive your benefits, they’re rarely enough to make up pre-unemployment household expenditure.

The considerable gap between people’s earnings and their benefits entitlement means there’s a strong possibility that individuals who are unemployed for more than a few months would struggle to manage their finances. How would you cope if you were suddenly made redundant?

What About Redundancy Payouts From Former Employers?

This is a complicated question.

Your former employer is usually required to pay you Statutory Redundancy Pay at a minimum if you’re made redundant (although some employers may choose to offer more than this).

To qualify, you’ll need to have been working for your current employer for 2 years or more and be an employee. Maximum redundancy pay depends on your age, but broadly you’ll receive:

• Half a week’s pay for each full year you were under 22
• 1 week’s pay for each full year you were 22 or older, but under 41
• 1 and half week’s pay for each full year you were 41 or older.

For the purposes of redundancy payouts, length of service is capped at 20 years.

There’s also a weekly pay cap to consider. If you were made redundant on or after 6th April 2019, this stands at £525 and the maximum statutory redundancy pay you can get is £15,750. If you were made redundant before 6th April 2019, the amount you’ll receive will be less than this.

Redundancy payments, including any severance pay, are usually tax-free below £30,000.

It’s worth noting that you cannot claim any Statutory Redundancy pay if your employer offers to keep you on or your employer offers you suitable alternative work and you refuse this without just cause.

How Does Redundancy Insurance Work?

Redundancy Insurance provides cover in the event of unexpected, unforeseen unemployment.

Should you unexpectedly be put out of work, these policies pay you a tax-free monthly benefit for a short period (either 12, 18 or 24 months) until you find a new job and are back on your feet.

• You are made unemployed.
• You register as unemployed with the Job Centre and start claiming Universal Credit (or potentially still Jobseekers Allowance for a small minority of people, depending on your circumstances).
• Your insurer will assess your unemployment claim and start paying out your monthly benefit after your deferred period.
• Your policy will continue to pay out either until you start a new job or reach the policy limit, which could be either 12,18 or 24 months depending on the terms of your policy.

With Redundancy Insurance, should you be made unemployed again in the future, you would be able to claim again in the same manner you did the first time round. There is no limit on the number of times the policy could pay out providing you keep paying the premiums.

How Much Does Redundancy Insurance Cost?

The cost of Redundancy Cover will not be the same for everyone because it is determined by your circumstances and the options you choose.

Length of Cover

When buying your policy, you have the option to choose a benefit period of either 12, 18 or 24 months. The longer the benefit period the higher your premiums.

Level of Cover

The amount you can insure will often depend on whether you are linking the protection to your mortgage. As a general rule you are able to insure the lesser of 65% of your pre-tax earnings or £2,500.

The greater the level of cover the higher your premiums; however, premiums are likely to be less than a full Accident, Sickness and Unemployment policy as you have stripped out a proportion of the cover in just choosing unemployment.

Setting Your Deferred Period

A deferred period is a period of time for which you agree to be unemployed until you are able to claim on your insurance policy.

Your insurer will give you several options for your deferred period and the longer you set it, the cheaper your premiums are likely to be.

You should consider the likelihood of you not being able to find a job within any notice period you receive from your employer plus your deferred period.

You won’t be able to claim until both those have lapsed, so while a longer deferred period could save you money it may make it harder to claim.

Note that the deferred period is different from an exclusion period the insurer will typically place on your policy. This refers to a set number of days after taking out the policy during which you cannot make an unemployment claim.

During the exclusion period it is not possible to make an unemployment claim if you are made redundant or informed of your potential redundancy (i.e. you are put ‘on risk’ or your company announces that members of your department are to be made redundant).

The exclusion period usually ranges from 90 days to 120 days, depending on the insurer, and only applies for this initial period after taking out cover.

Average Cost of Unemployment Insurance

To work out the cost of Unemployment Insurance, we’ve assumed:

• The individual is an office worker
• They want a benefit of £1,500 a month
• They’re looking for an 8 week deferral period
• Their cease age will be age 65

The Redundancy Insurance quotes below were generated from our instant online quote engine and represent the cheapest policy that matches the above criteria from across the entire UK market.

Get Unemployment Insurance Quotes and Expert Advice

There are many different protection products available to protect your finances if you are out of work and a lot of options to choose to tailor your cover to your needs. That’s why, instead of tackling the job alone, we recommend speaking to one of our expert advisers.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3886 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

With a number of exclusions and key things to look out for taking out Unemployment Insurance can be a bit of a minefield.

If you need any help please do not hesitate to pop us a call on 02084327333 or email at help@drewberry.co.uk.

Tom Conner
Director at Drewberry