How To Use Insurance To Protect Your Income

The economic outlook is still uncertain and many are bracing themselves for more job cuts, especially if we head into a "double dip" recession. So what can employees do if they are worried about losing their jobs? Consider insurance. There are a number of products available, all of which will pay out a monthly sum if the policyholder is made redundant. However, there are concerns that smaller insurers are beginning to refuse to offer cover to those in the public sector and as widespread job losses look likely, premiums may well rise sharply. Those considering unemployment insurance, have the choice between two different products.

The first is known as Accident, Sickness and Unemployment cover (ASU). This is an annual insurance, as it is renewed every year, much like your home or car insurance. So you can cancel it, if and when economic situation improves. If you are unable to work, either as a result of ill-health or redundancy, these policies will pay out a fixed sum for one year. A form of this insurance, known as Payment Protection Insurance (PPI), is often sold alongside loans, credit cards and mortgages. Basically it is the same, the only difference being the payout only covers the interest payments due on the linked loan and again usually just for one year, but the payout is usually made directly to the credit provider.

The cost is dependent on the monthly benefit you are insuring and the "excess period". Premiums are lower if you opt for a 60 or 90 day deferral, which can be useful for those who know they will get a reasonable redundancy pay out. When buying ASU cover there are a number of exclusions to consider. The most important one being that this cover will not be valid if your employer has already announced a redundancy programme. Those working in the public sector need to recognise that if the school, NHS trust, local authority or private company, has already announced a redundancy programme, then it is too late to buy cover. If you do, any subsequent claim will be rejected.

The second option is a policy called an Income Protection Policy. This insurance is designed to pay out if a policyholder is unable to work through ill-health, but it is possible to buy an unemployment add-on. The differences being that any claim for ill health will be paid out until the person returns to work, as there is not a 12 month cut off, although there is for unemployment cover. Premiums are also guaranteed for as long as you hold the policy, ASU insurers could increase premiums at renewal annually. In most cases the policies will pay out if ill-health prevents you from doing your own job; with ASU you are only likely to make a valid health claim if you can't do any work at all, which means far fewer claims will be paid out.

Additionally, most ASU policies automatically exclude claims relating to back injuries or stress, two of the most common complaints why people have prolonged periods off work. Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances. Web-based disability insurance calculators assist in determining the disability insurance needed.

High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some companies.

Key Person Disability Insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee's disability appear to be short-term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs. Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.