Five Questions About: Unemployment insurance

What is unemployment insurance?

There are a number of different products that can be described as unemployment insurance, as they would meet the policyholder's credit obligations or mortgage if they were made redundant.

One of the most common forms of this type of cover is mortgage payment protection insurance (MPPI) cover, which is otherwise known as accident sickness and unemployment (ASU) insurance. This type of policy will cover your mortgage for up to 12 months if you are unable to work.

How much will they pay out?

Most policies limit the amount of money paid out, with a typical maximum of £1,500 or £2,000. Claimants will usually have to wait out an agreed period before they can claim, often around 30 days, but sometimes as long as three months.

What affects the cost of cover?

Many things affect the cost of unemployment cover, such as the amount needed, the payment period and the point at which it becomes payable. It also depends on the perceived security of the job being insured – public sector workers will undoubtedly pay more than their private sector counterparts.

What other kinds of policy offer financial protection?

For more comprehensive cover than ASU policies can offer, an income protection policy could be worth a look. This will cover you if you are unable to work because of illness or injury up to the age of 65. While they won't pay out if you lose your job, you can often take out unemployment cover as an add-on. This will typically increase the cost of premiums by about £20 or more a month.

Is it worth the money?

Every policy of this kind is stacked with exclusions, so policyholders must fully understand the cover they are buying and be comfortable with the limitations.

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