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Unemployment Insurance Guide
Accident, sickness and unemployment insurance is designed to provide you with protection and to cover your income or mortgage payments should you be unable to work in the UK as a result of an accident or illness or redundancy. This type of insurance provides cover to enable you to maintain a reasonable standard of living.
Included within the current UK unemployment figures are around 2 million individuals who have been absent from work for periods in excess of six months. The majority of these have been off work due to long-tem illness or injury, so clearly when considering applying for or taking out an accident, sickness and unemployment insurance policy can be of immense benefit to the individual concerned.
Types of Cover
ASU - Accident, sickness and unemployment cover is a suite of income protection products sold as a single entity. These policies can provide you with a monthly income which is tax free should you be unable to work due to long term sickness or incapacity, and or unemployment. However, to cover the unemployment bit usually requires the payment of an additional premium.
The way in which this type of ASU policy works is that it will covers a set percentage of your gross salary. This is before things like tax and National Insurance are deducted. The ASU policy will then pay to you a set level of income every month either for as long as your qualifying incapacity continues, or you return to work but only up to the maximum number of monthly payments which are as specified in the policy terms and conditions.
The cost of your plan will depend on several factors. These include your age, level of cover selected, and the other options such as the deferred period you select.
Unemployment insurance can be a complex area and care should be taken when selecting the right policy. Some policies can appear to be excellent value for money, however upon further examination of the fine print, you may realise the policy does not fully meet your requirements.
The main reason why some applications are declined is due to the occupation or industry of the applicant being considered high risk. A number of occupations are currently not popular with certain insurance companies.
With so many accident, sickness and unemployment products on the market, and hundreds of accident, sickness and unemployment providers trying to convince you that their product is the best, this guide attempts to talk you through the most common features of all accident, sickness and unemployment policies, so that you can make an informed choice and choose the accident, sickness and unemployment policy that best meets your needs.
Unemployment Insurance is designed to protect a borrower's ability to maintain repayments and helps them avoid getting into debt should they be unable to keep up their repayments due to accident, sickness (Disability) or unemployment.
Policies are available to protect most forms of personal credit, including most commonly mortgages, rent, personal loans (secured and unsecured) and credit card repayments. This type of policy can often be included as part of the loan/mortgage arrangement or taken out as a stand-alone policy.
The normal eligibility requirements are that you are permanently resident and working in the UK, aged between 18 to 65, and that you are employed for at least 16 hours a week or on a long term contract or have been self-employed for a period of time. Other criteria that you have to meet are as follows,
All policies will have a period at the start of each claim that you will need to wait before payments begin. Once your claim has been accepted by the insurer, benefit periods will depend on the type of policy taken out. Normally claims are paid for up to 12 months on most policies, but some policies that can be more expensive offer benefit periods up to 18 or even 24 months.
Initial Exclusion Period. An 'Initial Exclusion Period' is the period from the commencement of the policy during which the policy will not be effective should an announcement of loss of employment be made - even if the actual date of the loss of employment is later. This is to stop people taking out policies when they know that their employment status is uncertain.
Excess or deferred period
Ideally you should avoid having an excess. The Excess or deferred period is the period from the time when a valid claim commences, to the start of benefits being paid. Please note that the commencement date is NOT the date that you lose your job - it is the date on which you become eligible to receive benefits. If, for instance, you are paid 3 months 'cash in lieu' the commencement date would begin 3 months after the termination of your contract.
This is the period of time for which the benefit is paid under the terms of the policy. The majority of policies have either a 12, 18 or 24 month benefit period.
Why you need Unemployment Insurance
When you feel secure in your job and are in good health, it's all too easy to overlook the need to plan for the unexpected. However, if you were to suddenly lose your income, you'd certainly wish you'd thought ahead.
Have you worked out how long you could cover your outgoings if you were made unemployed, fell seriously ill, or had a bad accident that stops you from going to work?
If you're self-employed, how would you be able to cover the cost of living?
It's no use just hoping for the best. We all stand a good chance of facing these sorts of problems during our working lives.
Did you know?
1 in 3 people will be diagnosed with cancer at some point during their lives? (Office for National Statistics)
Someone has a heart attack every 2 minutes? That's up to 275,000 people every year. (British Heart Foundation)
The average period of an unemployment claim is 200 days (Council of Mortgage Lenders)
How long could you manage without Income Protection?
Very few of us have the financial resources to cover the cost of living for long if we lose our main source of income. So ask yourself:
How long would my savings last if I was out of work?
If I lost my job, what redundancy package would I receive?
If you're self-employed, do you realise how limited the support is from the State?
If you're a homeowner, how long before your home could be repossessed?
No one likes to think about these unfortunate realities. But if thinking about them now helps you to make provision, you'll be glad you did if the worst happens.
Social Security benefits - the uncomfortable truth!
"How will we pay the mortgage?" is often the major worry when the household income is under threat. But you can avoid having your family home repossessed by making plans now.
Many people think the State will provide immediate cover for their mortgage repayments if they are in financial difficulty. Not so!
You'll receive NO assistance with mortgage repayments for the first 9 months of unemployment
You'll receive no assistance towards the portion of your mortgage that exceeds £100,000
You'll receive no assistance at all if your partner works more than 24 hours a week
You'll be 'means tested', with no assistance at all if your savings exceed £8,000
There is some limited financial help through the State Benefit System (Income Support for Mortgage Interest - ISMI) but it only applies to mortgage interest, not capital repayments, or other mortgage related out-goings such as insurance premiums.
ISMI is only paid at the Standard Interest Rate, which may not match the rate your mortgage lender is charging.
You'll receive no benefit at all if your National Insurance contributions aren't up-to-date
Self-employed people can only claim state benefits if they have 'employee' status (i.e. if they're trading as a limited liability company OR as a long term contractor on the client's payroll)
And if you earn an average of £87.00, or more per week... your Statutory Sick pay entitlement is only £72.55 per week!
Could you and your family survive on this?
Unemployment - more bad news
In August 2007 UK unemployment reached 1.65 million (Department for Work & Pensions)
The average length of a state benefit claim for Accident or Sickness is 191 days (* Office for National Statistics)
In the first half of 2007, 14,000 domestic properties were repossessed. UK repossessions are projected to reach 34,000 by the end of 2007. (Council of Mortgage Lenders)