Unemployed female office worker leaving office having been made redundant

Unemployment Insurance

Unemployment Insurance vs. Accident, Sickness and Unemployment.

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Guarding Against Unemployment in 2023

For many people in the UK who are in full-time employment, the adverse financial effects of suddenly finding themselves out of a job can hit hard.

Various insurance policies are available to help offset the specific risk of unemployment or involuntary redundancy. Broadly speaking, these are likely to be referred to as either Unemployment Insurance, Redundancy Insurance or, the more comprehensive Accident, Sickness and Unemployment (ASU) Insurance.

However, it is important to note that, versus previous years, in 2023 the number of insurers offering standalone Unemployment Insurance policies has fallen substantially for reasons outlined below.

Therefore, it is essential those considering standalone Unemployment Insurance compare this to an ASU policy in order to make a well-informed decision about what coverage may best align with an individual’s needs.

What is Unemployment Insurance?

Unemployment Insurance is a short-term income protection policy designed to offer financial support to individuals who find themselves involuntarily out of work. It generally provides a monthly benefit for up to 12 months to help cover the cost of living while the policyholder finds new employment.

The monthly benefit can provide up to 65% of the policyholder’s gross annual income (normally capped a maximum of £2,000) which is tax-free.

Why are less insurers offering Unemployment Insurance?

Following the initial outbreak of COVID-19, many insurers reviewed their exposure to the risk of a similar event causing large-scale redundancies. Some insurers withdrew products altogether where as many instead opted to continue providing the cover but only as part of a wider, more comprehensive Accident, Sickness & Unemployment policy. Because of this, it is reasonable to predict that standalone Unemployment Insurance policies are likely to become even more scarce overtime.

Qualifying Criteria

Most insurers are likely to only consider new policies for UK residents that have been in full-time employment for at least 6 months with the same employer and out of any probationary period. Some insurers may consider part-time employees, although this is becoming increasingly less likely.

Occupation and job title may also cause insurers to reject any new policy applications. If the current or estimated future demand for a specific occupation is deemed to be in decline, this may result in a refusal or increased monthly premium. For example, in early 2023, massive improvements in the speed and quality of artificial intelligence technologies mean that certain professions are likely to see dwindling demand. Therefore, individuals in these professions may find that insurers are less likely to offer them standalone Unemployment Insurance.

Insurers may also consider an individual’s employer before determining whether they will offer Unemployment Insurance. If the applicant is employed by a large, listed company who has posted recent profit warnings it is quite probable that an offer of a policy will not be forthcoming.

Finally, another factor some insurers will consider is whether the individual is a home owner or not. Those in rented accommodation may find that they are considered higher risk.

Making a valid claim

For a policyholder to initiate a valid claim they will undoubtedly need to have lost their job due to compulsory redundancy. Taking voluntary redundancy, resigning (even if it is later proved that your employer was guilty of constructive dismissal) or getting fired (even if the dismissal is later ruled to be unfair) will not suffice for a valid claim.

Additionally, it is likely that the policy will have needed to be in place for at least 120 days. This is because insurers are acutely aware that the signs of possible redundancy can often be observed by employees months before compulsory redundancies are actually announced. Indeed, UK companies are required by law to seek applicants for voluntary redundancy or early retirement before making compulsory redundancies.

During any claim period it is also possible that the insurer will require the policyholder to be claiming and receiving job seekers allowance. Should a policyholder cease to receive job seekers allowance (for example, because it is deemed that they are not making the required efforts to find work or have refused an offer of employment) it is possible that the terms of the policy will mean that the monthly benefit will end.

Is Unemployment Insurance worth it?

As with any type of income protection, determining the worth of Unemployment Insurance depends on each person’s unique circumstances. For some, the reassurance of having a financial safety net during periods of job loss can be invaluable. Since standalone Unemployment Insurance policies are becoming increasingly uncommon in the UK, a more comprehensive policy that includes cover for accidents and sickness is quite likely to offer better value.

Do I need Unemployment Insurance?

Deciding whether Unemployment Insurance is necessary depends on a variety of factors such as one’s financial stability, job security, and existing support networks. It is important to weigh not only the immediate financial impact of unemployment but also its long-term implications on one’s overall financial health.

If you are not directly employed then Unemployment Insurance is definitely not a suitable policy. Instead there are more tailored Income Protection plans for contractors and the self-employed.

Accident, Sickness and Unemployment (ASU) Policy: A Comprehensive Alternative

As noted above, the UK insurance industry has gravitated towards offering more inclusive Accident, Sickness and Unemployment (ASU) policies. These policies deliver wider coverage, including financial assistance in case of an accident or illness that prevents an individual from working, as well as unemployment benefits. This all-encompassing approach ensures that policyholders receive protection against a broader range of circumstances that could lead to income loss.

Why Choose an ASU Policy Over Standalone Unemployment Insurance?

  1. Broader Coverage: ASU policies offer protection for accidents and illnesses, as well as unemployment, providing policyholders with a far wider safety net against potential income disruptions.
  2. More Choice: Since standalone Unemployment Insurance policies are becoming scarce, opting for an ASU policy provides consumers with a wider choice of insurers.
  3. Competitive Pricing: Because there is a wider choice of ASU policies (and therefore more competition), insurers will often have more competitive pricing compared to standalone Unemployment Insurance policies, giving consumers better value for money.
  4. Greater Peace of Mind: By covering accidents, sickness, and unemployment, ASU policies provide policyholders with a robust financial safety net in place that covers a much wider number of scenarios should they experience income loss.

In comparison to standalone Unemployment Insurance policies, Accident, Sickness and Unemployment (ASU) policies deliver a more comprehensive and adaptable solution for those seeking protection against the financial difficulties of unemployment.

With broader coverage, increased flexibility, and competitive pricing, ASU policies give policyholders greater financial security and peace of mind. By carefully evaluating individual circumstances and the benefits provided by each policy type, one can make an informed decision that best meets their needs and offers the financial protection they deserve.

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Part of Halo Consulting, Black Lion Insurance are a dedicated team of insurance consultants with years of experience in guiding our clients to a solution that meets their specific needs. We specialise in helping both employed and self employed individuals, as well as business owners on a variety of solutions, which range from life insurance, income protection insurance, keyman insurance and shareholder protection insurance.