Why Bother with Unemployment Insurance?

Unemployment insurance is available in a wide range of options with various different costs and benefits. Some applicants will choose just to cover their mortgage repayments and important household bills, while others will opt for a protection option which covers all bills and loan repayments.. However, if people already have a decent amount of money in savings, why would they even bother with insurance at all? Surely could survive on these savings in the event of losing their job?

Unfortunately it is not that simple. Statistics published last year show that the majority of people in the UK do not have the necessary savings to get by for more than two or three months if they were to be made redundant.

Unemployment cover is a low cost alternative to having the substantial savings needed to meet the bills while the bread winner is out of work. Anyone who chooses to purchase the top level of insurance is effectively placing up to tens of thousands of pounds at their disposal should they not be able to work for up to a year. Additionally, these benefits will be made available if the policy holder is rendered unable to work through injury or sickness, as well as in the event of redundancy.

Thus, unemployment insurance can be seen like having savings in the bank, which can be drawn out if the policy holder finds themselves without work. The chief advantage of this is that the individual does not have to save up all the money themselves.

Customers are on average likely to pay a premium of around £40 per month for a monthly benefit of £1,500, although many will choose slightly lower benefits and an excess to reduce their premium to around £20. Putting aside £20 a month for unemployment insurance is of course much easier than trying to personally save the thousands of pounds necessary to offer the same level of financial protection following redundancy.

Insurance and financial products can be difficult for people to understand, but at the simplest level, the key value of unemployment insurance or income protection is to give the customer a higher degree of financial security than they could achieve themselves through savings or unemployment benefits.

Unemployment insurance is designed to be provided alongside (not instead of) any State Benefits which individuals are entitled to when they are out of work. Most people who are made redundant find that the Government's standard £65.45 per week Job Seekers Allowance is not sufficient to meet their outgoings, such as a mortgage or rent payments. Unemployment insurance thus serves as a top-up to the State allowance.

Unfortunately, applying for unemployment insurance is not always easy. Underwriters look to cover only those who are secure in their job and for whom unemployment is unlikely to occur. Individuals working at companies which are expected to make redundancies in the near future will probably find it very hard to get unemployment cover. It is therefore of paramount importance that applicants don't leave it too late to sort out their unemployment cover, especially since most providers will not pay out on a claim made within the first 120 days of the start of the policy.