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Web Exclusive: Insurance against job loss, anyone?

05 September, 2009

Since the last one year, people across all corners of the world have been hit as recession rampaged across the world decimating the big boys of the corporate world like Merrill Lynch, General Motors, AIG and many more. The first casualty of the recession has been jobs and there have been large-scale retrenchments in the West. This trend has been slowly making its presence felt in India though with lesser severity. The sectors most affected have been IT, BPO, finance and investment. The absence of large-scale retrenchment has not been able to erase the sense of fear or foreboding about the threats of job loss in India. The fear of the pink slip continues to haunt many a professional and this threat will remain as long as the stranglehold of recession remains over the corporate world. In this scenario, a job loss cover would be the ideal protection for any individual, especially a person with school-going children and EMI's to pay and whose life can be torn apart at the prospect of a job loss.

This cover not only offers protection to an employee but also instills confidence in banks who are understandably wary of giving loans in troubled times. A job loss cover has never existed in India and it is only recently that some insurers have come forward with this protection. This cover is sold as an add-on cover with a critical illness policy and covers accidental death and permanent total disability and also and takes care of EMI's on a loan. But, beware; these policies do not cover loss of job due to underperformance, voluntary resignation or early retirement. In the West, job loss protection has been especially popular during the periods of poor auto sales. The reason being that in times of recession, people are wary of buying cars because of the fear of losing their jobs during the lease. Redundancy covers on mortgage payments too are sought after especially in the wake of growing instances of job loss. These are known as mortgage payment protection or mortgage repayment protection policies because they cover your mortgage payments in case of job loss not only through redundancy but also accident or illness.

Then there is the mortgage protection insurance which will repay the outstanding balance of the mortgage in the event of the death of the insured and the income protection insurance which gives out a regular cash payment that replaces a part of the lost income of an individual if he was suffering from a long term illness of disability and is unable to work.

The US government has been doing their bit to lend a helping hand to fired American workers who have lost their health benefits after losing their jobs. Under a 1986 law called Cobra, U.S. workers can remain on their employers group plan up to 18 months after retrenchment. Generally, unemployed workers have to pay the entire cost of the health-care premium including a 2 percent administrative fee. In an effort to stem burgeoning health care costs in the wake of a growing number of unemployed, a $24.7 billion subsidy was made available by the American Recovery and Reinvestment Act of 2009. Now, employers are required to pay 65 percent of their former employee's Cobra premiums and file for a tax credit. The subsidy will cease for taxpayers with an adjusted gross income above $125,000 for an individual and $250,000 for those filing jointly. The federal subsidy reduces the average cost to remain on an employer's group plan from $1,078 per month cost to $377 per month for a family. Unfortunately, those who had lost their jobs due to a company going bankrupt or those who had worked for a company fewer than 20 employees would no be eligible for these benefits. Another interesting offer from Hyundai " Hyundai Assurance" guarantees that if the individual is unable to pay up his car loan, then Hyundai will allow him to return the vehicle and walk away from the loan obligation and will generally also cover most if not all the difference. Flybe, a European airline introduced an innovative travel insurance policy that gave free redundancy cancellation cover designed to reassure customers who may have been concerned that having booked a holiday, they may be unable to pay for it in case of losing a job. This free redundancy cancellation covered flights, booking fees, baggage fees, pre-paid car hire, and pre-paid hotels and airport parking. However, person insured had to have over two years continuous employment with the same employer in order to be eligible.

Recession has driven an increasing number of New Zealanders to opt for income protection insurance although most insurers do not cover redundancy as part of their income-protection products, but rather as a component of mortgage protection insurance. The logic behind this being that redundancy cover could become self-selecting, with those most at risk more likely to take it out. AIG Life's income protection options offer premiums that range from 35 to 238 New Zealand dollars depending on the age and sex of the insured. Interestingly, most products do not cover redundancy, and usually have a provision whereby the insurance stands cancelled if the person is out of work for a certain period. But, as the saying goes, there is no free lunch and these policies are known to be expensive and replete with exclusions and clauses and consequently difficult to get a payout on. At the end of the day, such covers can only provide a temporary shield from the impact of the financial and mental trauma of job loss. They offer the affected individual a short period of support and recuperation while he hastens to find permanent employment.

The author is Managing Director, Royal Sundaram Alliance Insurance Co Ltd