Unemployment : How to cover yourself

Unemployment hit a 15 year high of 2.5 million people, equivalent to 8% of the working population for the three months to February 2010 (source ONS 21/4/10) . So how can members protect themselves and their families from financial ruin if they fear their jobs are the next to go?

The first lines of defence are your redundancy money, any pay in lieu of notice and your own "rainy day" savings. There are also various insurance schemes that come under the generic classification of Accident, Sickness & Unemployment (ASU) cover, but are now more commonly referred to as Payment Protection Insurance (PPI).

You will no doubt be comparing schemes and it is possible that you might be offered cheaper cover, but there are specific pitfalls for airline pilots to be aware of especially as this type of insurance covers two main areas, Accident & Sickness, and Unemployment and some schemes let you take either element on its own ;

1. There may be a flying exclusion on the Accident & Sickness part, which would knock out any claim that was flying related, or worse any claim.
    
2. On the Unemployment cover, the definition of unemployment, as per the policy conditions will be a problem. All schemes will only continue to pay a claim , if the claimant remains registered as unemployed and seeking work with Jobcentre Plus, an agent of the Department of Work and Pensions (DWP). 

Not continuing to be registered may present a problem, as it is possible that a pilot may be asked to undertake a re-training course for another job, in as short a period as 13 weeks. It has been difficult to gain a definitive answer on this, as there is discretion given to each case officer, but the criteria is that you are given 13 weeks to find a job in your own occupation, or on a comparable level of pay. Given the training requirements, skill required, and specialist nature of the work, an airline pilot may be given longer. There is certainly a bigger hurdle to overcome with another review after 6 months of unemployment, and it is likely that re-training and looking for an alternative occupation would be required, although it would be hoped that airline pilots may be given longer.

3. A further important point to consider is that Flying Licence Insurance is perhaps more appropriate for airline pilots than the Accident & Sickness part of PPI. On the health side, PPI does offer one advantage over other types of health cover, in that it does pay out relatively quickly, but at a cost. If your circumstances are such that this is imperitive, then the policy recommended here allows you to include Accident & Sickness cover without the flying exclusion mentioned earlier. In the main however, for most pilots, the specialist alternatives such as Flying Licence Insurance and Income Protection (PHI) policies which we can offer, will provide a more cost effective and longer term solution, when tied in with employer benefits.  

For these reasons we have concentrated on stand-alone cover for unemployment only. This is however rapidly becoming hard to find as many providers have withdrawn from the market and those that remain have either substantially increased premiums, altered policy terms (eg. the qualifying period) or both. This is primarily a reaction to the current economic situation and the percieved increased risk. A further recent development is a move toward age related premiums, but this may be more beneficial to BALPA members as presumably it will generaly be the younger member who is at greatest risk of redundancy based on seniority scales.

In light of the above and having reviewed the market, the policy we now recommend is the British Insurance Protection a trading name of Towergate Underwriting Group Limited. This plan is underwritten by Great Lakes Reinsurance (UK) PLC and administered by FirstAssist Insurance Services Ltd on their behalf, so any claim will be dealt with by them. For a Quote, Key Features and Policy Wording please click here.   

Why should I choose this insurance?

• Highly competitive (age related) premiums.
   
• Excellent cover with very few exclusions - in particular there is no flying exclusion.  
   
• Monthly benefit upto 50% of gross monthly taxable income or £1,500, whichever the lesser.    
    
• There is no excess and claims are paid back to the first day of your claim.   
   
• Tax free claims payments are paid for up to 12 months.   
   
• Qualifying period 120 days.  
   
• All three levels of cover available; Accident & Sickness; Unemployment; and Accident, Sickness & Unemployment Cover.                

What is an Unemployment Cover and how does it work?

In a nutshell, this insurance protects your income against the unexpected happening. Certainly, none of us know what is around the corner when it comes to falling victim to redundancy or unemployment. Stop to think for a moment as to how you would cope if you fell victim to one of these events. Without a regular monthly income, how would you manage financially with the demands of your mortgage / rent, utility and other bills?

This is where unemployment cover can step in and provide a monthly tax free cash sum, usually based on between 40% and 60% of your gross earned income, to see you through a difficult financial time. Payment is made directly to you (so may affect entitlement to social security benefits), allowing you to continue meeting some or all of your financial commitments (dependant on the level of cover taken out) while you recover or seek alternative employment. Where your employer offers good salary related benefits if you are sick or injured, it will usually be sensible to buy free-standing unemployment cover. 

Unemployment cover is easier to find if you bundle it with other types of PPI, for which see our Guide to Payment Protection Insurance below.

What is not covered?

It is important to remember that to qualify for unemployment cover benefits you have to become unemployed through no fault of your own ie. it has to be involuntary redundancy. Unemployment cover will not therefore pay out, if for example, you;  

• Resign.
   
• Accept voluntary redundancy.   
    
• Lose your job because of your own misconduct at work.   

A Guide to Payment Protection Insurance 

There are three main types of payment protection insurance -  mortgage payment protection insurance (sometimes known as MPPI for short); loan payment protection insurance and, income payment protection insurance. You can also get credit card payment protection insurance. With all of these policies, in the case of unemployment through involuntary redundancy, and or, accident / sickness which leaves you unable to go to work, you will recieve a monthly, tax free sum to help replace lost income typically for 12 months and possibly upto 24 months dependant on the policy provider.  

Credit Card Payment Protection Insurance will be useful for you if you wish to protect the repayments on your credit card should you lose your income. Certainly, credit card protection insurance (or cerdit card insurance for short) can stop you being charged hefty fees if you miss a payment as well as excess interest. Credit card insurance also means that your credit file will be maintained, as no payments will be missed.

Income Payment Protection Insurance is linked to your earnings and any payout is made to you direct. It can therefore be used to cover all your major outgoings from mortgages to the gas bill, although it could affect your entitlement to social security benefits. Cover - which is usually based on between 40% and 60% of your gross earned income or upto 75% of your net earned income - is intended to pay out if you are too ill or injured or are made redundant. The monthly premiums you need to pay will naturally be determined by the amount of cover you select and be subject to the insurance provider's limits. Typically the maximum payout will be £1,500/mth. though the range can be as low as £1,000 and as high as £2,500. Oualifying periods have in the past been as low as 60 days but are now typically 90 - 120 days.

Mortgage Payment Protection Insurance (MPPI) is linked to your mortgage commitments and associated costs. Associated costs will usually include payments for things like home and or contents insurance, mortgage related life insurance, mortgage related savings plans, as well as the MPPI, plus of course your normal monthly mortgage commitment. The benefit is usually paid for a year - sometimes two. More often than not it is paid directly to you (in which case it may affect your entitlement to social security benefits) and thereby enables you to choose how to apply the benefit most effectively for your given circumstances and thereby hopefully ensure that you would not fall into arrears and be at risk of repossession ie. it can literally save the roof over your head. 

Loan Payment Protection Insurance is specifically linked to a personal loan or other credit agreement often with the benefit going direct to the company providing the financial service which means payments should not affect your entitlement to social security benefits. It helps service your credit commitments, saving you from late and missing payments, fees, as well as keeping your credit report unblemished. It saves you the worry of not being able to meet your monthly debt should you lose your income. The average cost of cover sold by the company providing the credit arrangement is around £18 a month for every £100 of monthly cover. If you want peace of mind by all means consider taking out the cover, but taking it from the loan provider is expensive and can add thousands of pounds to your loan. It is therefore advisable to consider going through an independent provider. 

Unemployment Cover is either, automatically included in the above insurances or, as a free-standing policy. In the former instance the benefit level will be determined as mentioned above and in the latter case will usually pay out between 40% and 60% of your gross earned income, if you are made redundant. Payment will be made directly to you but this could affect your entitlement to social security benefits. Where an employer offers good salary related benefits if you are sick or injured, it may be sensible to buy this free-standing unemployment -only cover. The cost can however be more than buying a policy that covers accident & sickness as well. 

What you need to do if you are made unemployed / redundant?

As soon as you are made aware that you are to be made redundant contact the Job Centre Plus for advice and to sign on as seeking work at the earliest opportunity. As most providers will not start processing your claim under unemployment insurance until you have registered as seeking employment with the Job Centre Plus.