Job Loss Insurance: A cover for your salary

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The COVID-19 pandemic has made everyone realize the importance of many things including jobs, insurance, and financial planning in order to lead a balanced and stable life as many working professionals faced pay-cuts and job loss. During such uncertainties, insurance is one of the best ways of protecting yourself and your family. Having job loss insurance is one among them. Job loss insurance is coverage for full-time workers that provide a temporary income in case the policyholder loses their job or income.

In India, no insurance company offers stand-alone job-loss insurance. However, there are two schemes under Employees’ State Insurance Corporation (ESIC)  which are Rajiv Gandhi Shramik Kalyan Yojana(RGSKY) and Atal Beemit Vyakti Kalyan Yojana(ABYKY) that offer unemployment benefits in India supported by ESIC on behalf of the Government.

To be eligible for benefits under the RGSKY scheme an individual must be an insured person under the ESI Act on the date of loss of insurable employment and should have contributed to the scheme for a minimum period of five years prior to the loss of employment due to ‘retrenchment’ or ‘closure’, as defined under the Industrial Disputes Act, He can avail unemployment allowance under RGSKY to the extent of 50% of the salary for the initial 12 months and 25% of the average salary from the 13th to 24th months, subject to fulfillment of the eligibility conditions.

Under the ABVKY, the unemployment allowance has now been enhanced from 25% of the average salary drawn to 50% of the average salary, payable for a maximum of 90 days of unemployment. This enhanced benefit is available only in respect of employees who lost employment during the Covid-19 pandemic period from March 24, 2020, to December 31, 2020.

Whereas, insurance companies are providing job loss insurance only as an add-on with other policies that cover larger risks such as critical illness, personal accident cover, home insurance, and so on to provide job loss assistance. But this has so many exclusions that make the benefits minimal.

As of now, Policybazar has launched a separate vertical that provides insurance cover for job or income loss with the aim to provide income replacement benefits policies to customers for a specific time period. It is in partnership with SBI General, Shriram General, Universal Sompo, Aditya Birla Insurance, and few others. This offers covers for job/income loss under two conditions, one on termination or layoff and the second on accident resulting in death, partial or permanent disability. The plan helps by paying off loans for up to 3 months. In case, job/income is lost due to an unfortunate accident that results in death, partial or permanent disability, or disablement, the insured can get weekly salary benefits for up to two years.

The growing middle class in the country needs options to safeguard themselves from sudden financial shocks as they tend to have liabilities of paying monthly installments to service loans. A loss of job/income insurance is the right policy to own to protect from such eventualities.” said Sarbvir Singh, CEO, Policybazaar.com.

However, looking at the narrow scope of the cover and the limitations of job-loss insurance, the best alternative option is to create and maintain an emergency fund that covers four-to-six months of your expenses.