Job Loss Insurance Cover is the new buzzword in Insurance industry. In India, it is not available on a stand-alone basis from a personal finance perspective. Job Loss Insurance Cover is an add-on with Home Loan Protection Plan or Critical Illness Cover. There is a famous saying that necessity is the mother of all of invention. In literal terms, the changing job scenario is forcing the insurance providers to launch such innovative covers. Job Loss Insurance Cover is finding a traction due to fear of job loss. As a layman, an insured person’s understanding is that Job Loss Insurance Cover will provide financial safety in the need of the hour. Insured is not aware that such covers are conditional in nature. We will discuss this later in the post. Currently some of the products that are offering Job Loss Insurance Cover are
- HDFC Ergo’s Home Suraksha Plus – Home Loan Protection Plan
- ICICI Lombard’s Secure Mind – Critical Illness Plan
- Royal Sundaram Safe Loan Shield – Critical Illness Plan
To explain in simple terms, let me take an example of ICICI Lombard’s Secure Mind. It is an add-on cover that is attached to the SIP from ICICI Direct. Please note that you need to pay additional charges to avail this cover. Therefore, it is like bundling of financial products. The sum assured is equivalent to the amount committed towards SIP i.e. SIP of 1000 per month for five years means coverage of Rs 60,000. God forbids and if the policy is invoked due to job loss. Under Job Loss Insurance Cover, the beneficiary will be paid 2% of Sum Insured per month (max for three months). In short, 6% of the sum insured in the event of job loss i.e. maximum Rs 3600. Similarly, in Home Loan Protection Plan, it is restricted to 3 Home Loan EMI’s. As per the recent guidelines, this cover will be available only with the Life Cover. Now the million dollar question is should i opt for Job Loss Insurance Cover. Before concluding let’s check some of the important points which should be considered before availing Job Loss Insurance Cover.
Job Loss Insurance Cover – Important Points
(a) Beneficial for Insurance providers: Let me be very honest and candid. Add on covers like Job Loss Insurance Cover are more useful for insurance providers. Insurance provider hedges their risk in case of job loss & premium for the same is paid by the insured. Though i agree that it provide interim relief to insured but cost-benefit analysis is not for insured but insurance provider. The reason being insurance provider does not check whether the Job Loss Insurance Cover is required or not. As i shared in my post on Critical Illness Plan that insurance should be need based and depend on the probability of an unfortunate or undesirable event. Job Loss Insurance Cover is beneficial for an individual with the high probability of job loss. Whereas, it is being sold indiscriminately to one and all. For this post, i approached two insurance providers, and none of the advisers asked me about the job risk.
(b) Premium: Going by the example of ICICI Lombard’s Secure Mind shared by me. The insured fail to check the absolute benefit. These products are marketed around the USP of the product i.e. loss of employment but what is the absolute benefit. In the example mentioned above, the absolute benefit in case the policy is invoked is Just Rs 3600. Now you can decide to avail Job Loss Insurance Cover depending on the premium and the probability of job loss. The premium of master policy varies between 3% to 5% of the coverage. The premium of Job Loss Insurance Cover is another 3% to 5% of the total premium, but it is also dependent on other factors. In short, of total coverage, the premium for add-on cover is between 1% to 2.5% We can take an average of 1.75% of total coverage. Prima facie, it does not make sense to opt for it. Reason being, by paying a premium of 1.75% the absolute benefit is just 6% of the coverage.
(c) The reason of Job Loss: For raising claim, the reason for job loss is a most crucial aspect. The Job Loss Insurance Cover exclude job loss if the employee is asked to leave, poor performance or during probation. I shared the modus operandi of layoff in my post, Employee Layoff – The Real Story. To avoid adverse publicity, the corporate force the employee to resign in case of a layoff. Technically, the probability of claim in case of layoff and retrenchment is very low. Therefore, Job Loss Insurance Cover is redundant in Indian Scenario.
(d) Limited Coverage: As i shared that coverage is very limited which is just a notional relief for the insured. Even in the case of HDFC Ergo’s Home Suraksha Plus plan, the claim is limited to three EMI’s. Usually, the EMI is restricted to 50% of net take salary. Therefore, three EMI’s means max one and a half months net take home salary. Considering the home loan tenure of 20 years i.e. 240 months, the coverage of 3 months is just 1.25% of total value. Do you think it’s worth spending a premium for this kind of limited coverage?
(e) Period of Cover: In the case of Home Loan Protection Plan, the policy tenure is just five years. Therefore, Job Loss Insurance Cover is not available for entire Home Loan Tenure. Normally, the insured person is under a wrong notion that cover is for entire home loan duration. Another irony is that majority of the home loan borrowers are below 30 years, and the probability of job loss is low at this age.
Words of Wisdom: Currently, the job market in India is quite volatile and fragile. In my opinion, stand alone Job Loss Insurance Cover makes more sense compared to add-on cover. For any insurance cover, it makes more sense to avail insurance if the coverage to premium ratio is high. Moreover, there is a long list of exclusions in the policy. The cover is not that cheap as it is marketed and being perceived.
From a borrower perspective, it makes more sense to create a separate contingency fund equivalent to three months EMI. To summarize and conclude, considering the above mentioned 5 points, in my opinion it doesn’t make sense to avail Job Loss Insurance Cover.
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Hi Sir,
My question is not relative to the topic, but i dont find a matching topic to ask this question.
Currently I am going through the interview process, the company is not well known but having offices in multi states of India and multi cities. eventually i have been selected by HR in 2nd round but before joining they are asking me to sign a Bond for 2 years of Rs. 1.20 Lakh and i have to deposit a cheque also with the same value as a security deposit with them for 2 years. (They will not deposit it), they are offering good salary and I can assure them that i will not switch before year or two.
My question is,: 1) is it safe to give a bond, or is it legal in india?
2) giving chq is how much safe ? can any company missuse such things
3) all in all what will be your suggestion in this scenario, why companies asking such things from candidates, is it safe in respect of candidates career to opt an bonded employment ?
Awaiting your review.
The answer to your queries will depend on the content of the bond with the employer i.e. purpose and objective of Bond. You may ask for format of bond to check the same. As per ruling of various courts in India such bonds are illegal as it block career progression. Also it difficult to enforce such bonds therefore a cheque is demanded to levy monetary penalty in case candidate break any bond condition.
Hello Nitin Sir, I bought a house and the formalities were completed yesterday from the bank. While the cheque was issued yesterday, the bank offered me Home loan insurance. Should I opt for the Home Loan insurance they are offering? They said they cover job loss as well, should I opt for it? Or should I opt for something in LIC which will give returns if anything happens to me or my wife? The applicant of my loan is my wife and I am the co-applicant. My loan is from HDFC.
Please check my following post
https://www.nitinbhatia.in/home-loan/7-reasons-why-you-should-not-buy-home-loan-protection-plan/
It is a useless insurance policy, just wastage of money.
1. I can create my own deposit (RD/iWish Deposits (in ICICI) with interests accumulating on them), by taking such insurance those EMIs won’t earn any interest.
2. The loss of jobs in especially, in high-tech development jobs (not necessarily IT sector/ITes), are because of layoffs (employer asks to leave, for many reasons, company is in loss/low sales volume than expected, manufacturing defects took too much of expenses & to cut the cost they asks employees to leave).
3. Many/Most of the times, to hide their losses and/or no projects won from clients/customers & fear of loosing trust of customers/clients, they fires/terminates employees by false strategies of HR/Managers by terms them non performing employee to cut the cost/expenses when no projects are there.
4. Employee quits either if he/she is not happy / is highly exploited / harassed (working beyond 10 hrs) / bad treatment & quits it to find & attend interviews for new job. In such cases, if they find job then it is good & they don’t need to claim the insurance, otherwise, if even after 3 months of job search they don’t find job, they are in a risky condition, they need money to survive, but, he can not claim his own money deposited on no interest under this policy. Why will one opt for such garbage. Jobs are highly volatile todat, it is not just IT/ITes, many hi-tech jobs are innovation oriented, need high intellect & concentration like engg. product design and are almost all the time on the risk of job loss, every body can not keep up with such high demanding jobs. But, this insurance can not be claimed, as the employer may terminate/fire them, as he is in loss & such decision are taken instantly under depression/anger, So, instead of clean exit, they encounters termination, even when employee worked hard to his ability, but, he couldn’t suffice the need of highly skilled efficiency, in depth knowledge of engg. domain & very tight schedules to develop, test & release the product as the money is already taken from client (advance booking) & has to deliver it on commitment done on impractical promises of sales department to clients. Their life is already hell, the job loss breaks them down, to survive it, a useful insurance policy was needed, above insurance is nothing more than a waste. every thing doesn’t have a step by step procedure in development jobs, most of the work depends on intelligence & knowledge of the domain, development skills, ability to analyze the data & design constraints as per high level specifications, use analytical tools & engg. test instruments. But, sadly, all jobs are considered as procedural & execution/machine/tool running basis, without putting much of own brain, so, of course in such case only, if employee is terminated, then, it is because of voluntary non performance, rather than non performance in design/development jobs. According to this policy terms, all terminations are because of voluntary non performance of employee.