Can job loss insurance help if you get laid off? Here's the answer

Job loss is a jarring experience as it causes people to lose more than their source of income. Recently, several people across companies have faced job losses due to commercial shutdowns, mass lay-offs, and business re-establishments. Reportedly, there are more to come in the next few months. Even though such situations cannot be averted, it is extremely important to be financially prepared to avoid the burden of these events.

There is an insurance policy that might help employees tide off financial exigencies in case of layoff. This is job loss insurance cover. But is it worth it?

CNBC-TV18.com spoke to a few people to find out the scope of job loss insurance.

While most people said they are unaware of this, many mentioned benefits of this insurance are only available for a certain period. Also, it made no sense for them in case of mass layoffs.

“The scope of job loss insurance cover is very narrow, with many limitations. So, the job loss insurance add-on is not a dependable option. I had one but it was not useful to me,” said a person on request of anonymity.

It makes sense to note here that India does not have any specific insurance under the unemployment insurance category, which means there is no comprehensive job loss insurance cover. It may, however, come as an add-on with a critical illness cover or a home loan protection plan.

"These kinds of insurance policies cover consumers who work for themselves as well as those who lose their jobs, in addition to covering income loss due to job loss," said S Ravi, Former Chairman of BSE, Founder & Managing Partner of Ravi Rajan & Co while talking exclusively to CNBC-TV18.com.

While discussing other advantages, Ravi said that some of these are offered to Indian employees under labour regulations, including the Employee State Insurance Act of 1948 covering insurance benefits.

"Rajeev Gandhi Shramik Kalyan Yojana (RGSKY) is the program the Indian government uses to cover unemployed people. As a policy, Atal Beemit Vyakti Kalyan Yojna (ABVKY) was added to ESIC in 2018. It offered financial aid to the organized sector employees in case they lost their jobs for no apparent fault of theirs," said Ravi.

Ravi said that the person has to apply within 30 days to get benefits from this scheme.

"But the benefits of this insurance are only available for a certain period and are mostly given by the government rather than insurance firms,” he said.

Rohit Suleja, who recently got laid off from an eminent firm, said that he has a job loss insurance in place but it was not useful for him as his firing was based on other reasons than retrenchment or as a result of a merger or acquisition.

The person has no claims in these circumstances.

Also, job loss insurance is useless in situations like self-employment or voluntary unemployment.

Job loss insurance doesn't cover unemployment due to voluntary resignation or early retirement. Any termination, suspension or retrenchment from employment due to poor performance of the insured is also not covered.

"I was told that my firing has been done due to poor performance. Hence, insurance didn't help me at all," another person on request of anonymity said.

Job loss due to pre-existing diseases and health conditions is also not covered.

Certain covers fall under job loss insurance. They are:

1. Identity theft that covers financial loss and loss of job

2. Reputational injury

"This cover includes publication that harms an impacted individual’s digital reputation and results in loss of wages for him/her. It covers expenses in hiring an IT specialist to remove such publications and fees for psychologist consultation if required," said Kanishka Gadi - Head - Liability, Cyber and Banking business at Anandrathi Insurance.

3. Personal accident and loss of job

"In case of resignation from employment, the insurance company will pay the sum insured as stated in the policy schedule/certificate of insurance if the insured suffers a loss of income during the period of insurance due to the insured’s resignation from the employment arising out of accidental bodily injury sustained resulting into any of the following - permanent total disablement, permanent partial disablement and temporary total disablement," Gadi said.

The insured may obtain the unemployment insurance claim by meeting additional eligibility requirements.

"The insured needs to submit the claim papers mentioned in the policy document like proof of loss of income (salary slip, proof of loss of income (26A), resignation letter etc.), medical practitioner certificate, FIR (First Incident report), etc. with the insurance company," Gadi said.