Could buying insurance against job loss have helped the 20,000 Jet Airways employees deep in trouble in the wake of the airline’s grounding? It is a question that hangs in the air.
After struggling for months, India’s oldest private airline announced on April 17 that all its operations would be temporarily halted. Now, the banks that have taken control of the airline, have invited bids and hope that a new owner may be able to revive the company.
However, this crash-landing has left employees struggling to repay monthly bills. At least one Jet staffer has also allegedly committed suicide due to financial stress.
Yet, an insurance cover is unlikely to have helped much, say experts, riddled that they often are with exclusions. These job loss insurance covers act as income guarantee schemes in times of such mishaps and provide benefits such as covering your EMIs, medical expenses, etc.
The nearly 200-year old insurance market in India is still finding its feet and, therefore, such covers are not a runaway-hit in the country, sold only along with health insurance or home-loan products.
“There is a significant distribution cost attached to building a product and then marketing it. And unlike the west the market is not so developed in India and, therefore, all insurance companies sell it as a bundled scheme,” said Sanjay Datta, chief-underwriting, claims, and reinsurance, ICICI Lombard.
Apart from this there is usually a waiting period of between one and three months for this to kick in. Typically, in case of a job loss, the insurance company is likely to provide a cover for a few EMIs (including monthly payouts such as rent), but there is a cap on it which may be up to 50% of your total income.
In addition, there are conditions related to the reasons for job loss for availing benefits from this insurance. For instance, in the case of Bajaj Allianz, which offers this scheme along with its health insurance product, only if there is a job loss due to critical illness can the benefits be availed.
“In cases (where) the company has terminated your contract due to non-performance or as a result of a complaint against you, it would not be effective,” explained Nikhil Apte, of Royal Sundaram General Insurance.
There are other grey areas, too.
For instance, it is likely that if you have been offered a severance package then the scheme may not be effective. Or in most cases even during layoffs, the human resources professionals may ask employees to sign a resignation letter, which means the cover may not kick in.
“Most employees get to know at least a few months ahead that there may be job losses if the company is not doing well. So if they think they are in the high-risk zone and have a lot of liabilities, then they can look at protecting themselves by temporarily taking such covers,” said Anil Rego founder of Right Horizons, a wealth advisory and investment management company.
However, the thumb rule of buying any insurance product firmly stands: Be aware of the exclusions.
The other issue with the product is that it covers a few expenses typically up to only three months. Often, it can take longer than that to find a new job, said Suresh Sadagopan, founder of Ladder7 Financial Advisories, a financial planning firm.
A better option to protect yourself from a job loss would be to build your own corpus. “Ideally, one should have anywhere between one to three years of money saved as a contingency fund,” added Sadagopan. “This not only includes your expenses but also funding for short-term goals such as monthly investments into mutual funds, etc.”
Apart from building a corpus if a salaried employee senses any trouble in the near future, then it may also be wise to use some funds to pay up the EMIs upfront to ease the financial burden.
As the Jet fiasco blows out, it is another grim reminder to all working professionals to plan their investments and savings to ward off a precarious situation such as job loss.