Job-Loss Insurance: Should You Opt For This Cover?

With the job market in many sectors, including IT, seeing many ups and down, it is always advisable to be prepared for any financial crisis arising from loss of income due to job loss. Financial planners say that one should save at least 6-12 months of monthly expenses that can be tapped easily for any emergency-like situation, including loss of salary income. Some insurance providers also offer job-loss covers which aim to provide income replacement. Dhruv Sarin, head of Health Insurance at Policybazaar.com, says these job-loss covers are "bundled typically with home loans in India".

One can consider it for "financial obligations such as home loan repayments or a delicate employment status," Mr Sarin adds. In case of a job loss, "the insurers typically pay three home loan EMIs (equated monthly instalments)" depending upon specific conditions.

However, these job-loss covers have their own set of limitations. "Despite having a cover for income replacement, it might not kick in. It only kicks in when someone loses the job. The reality remains that not many people in India are fired by their employers or are handed pink slips," Mr Sarin said.

"The lay-off process is typically avoided. Employees are mostly pressurized to resign except in some situations like mergers and acquisitions," he added. Still, this add-on risk cover could be handy in some scenarios, he further said.

The waiting or cooling period for these plans is from one to three months "depending upon the insurance plan it is bundled with. As for the claim, it can be made only once during the term." he added.

Mr Sarin also highlighted the need to provide complete details to avoid any rejection while filing for a claim. "Written proof of retrenchment is one of the crucial documents that is required to assess the cause of job loss. Only then you will be eligible for the claim."

He also suggests that customers opting for this cover should know about all the terms and conditions of these plans since job-loss policy triggers only if the termination is due to the conditions included in the policy, not due to resignation by the policy holder.