What Is Unemployment / Disability Insurance?

When it comes to insurance, the first thing most people think of insuring are the small valuable items that they own. They might insure their new computer, the diamond necklace they bought for their wife or the expensive flat screen TV they just treated themselves to. Very rarely however, do people think of insuring their most valuable asset, themselves.

If you were ever involved in an accident and were unable to work for several months, your main source of income would suddenly be taken away from you. Unless you had an emergency fund to support yourself with, this accident could very well threaten your livelihood.

However, there is something you can do to protect yourself against such sudden and expected losses of income, and it’s called disability or social insurance.

Protection From Loss Of Income

Disability insurance is a type of insurance which will cover any lost income that you suffer as a result of an accident, injury or illness which prevents you from going to work. There are also unemployment insurance policies that can provide you with coverage in the event that you lose your job due to redundancy.

Note: Because the name “disability insurance” tends to cause confusion amongst people as to its purpose, many people are now starting to use the term “unemployment insurance” to describe both types of policies as this tends to be easier for people to understand what it is and what it is for.

Some larger companies provide their employees with disability insurance, which covers both physical and mental disability. However, for most of us, who either work for smaller companies or are self-employed, disability insurance is something that you will have to take out and pay for on your own.

How Much Unemployment Insurance Do You Need?

The only people who are eligible for unemployment insurance are those who are in full-time employment. You cannot, for example, get insured if you are currently out of work or if you are looking for work. It is only applicable whilst you are working.

How much unemployment insurance you need really depends on how much you are willing to spend on a policy and how much you would like to be covered for.

For example, if you have an emergency fund saved up which will support your current standard of living for 3 months, then you may not require any disability insurance at all.

However, just in case you find yourself unable to work for more than 3 months, it still might be a good idea to take out a limited policy that provides you with additional coverage beyond that what you have saved in a bank account.

We take a look at the two types of policies below, and then discuss some factors which can influence how much coverage you are likely to require.

Limited Policy

A limited policy simply means that you will receive some amount of money if you are unable to work, but you will not receive your full salary or will only receive it only for a limited amount of time.

Limited policies are generally best suited to those who already have significant savings to support themselves with, and do not wish to spend too much money on a disability insurance policy.

Full Policy

The second type of person who would benefit from disability insurance would be a person who lives paycheck to paycheck, and has little or no savings in the bank to support themselves with should they ever become unable to work.

In this case, a full disability insurance policy would be recommended, as this would compensate 100% of that person’s lost income during the period in which they are out of work.

However, whilst this type of policy offers a greater level of coverage than a limited policy, it is worth bearing in mind that full disability insurance policies are more expensive than limited policies.

So what type of policy you take out should be based on how much money you have of your own, and how much you are likely to need if you are ever unable to work for a certain period of time.

Note: For either of these policies it is possible to get a short-term or long-term agreement. The longer your agreement is the more expensive your policy is likely to cost, although it will give you much more time to secure employment or return to your workplace.

Dependants

Another important factor to take into consideration when applying for unemployment insurance, are the people who are reliant upon you and supported financially by you.

For example, if you are married and the only person earning a wage, then you may have to get an extended policy to cover both you and your partner.

The same would apply if you have children and you are the only one supporting your family. In this case, being unable to work could put your livelihood in serious jeopardy, especially if you have no savings to support yourself with.

This scenario is a lot more common than you might think. A large majority of the people who lose their home lose it because of the main provider being unable to work or out of a job, and subsequently being unable to keep up with their home mortgage repayments.

So if you have people in your life who you support and who are dependant upon you, then taking out disability insurance would be an extremely wise move on your behalf, as it could one day save you from losing your home.

Insuring Young & Older People

Despite the added security disability insurance provides, very few people actually have such a policy.

One of the main reasons for this may be due to the name “disability insurance”. If you didn’t know what this type of insurance was, you would probably assume that it is for people who are disabled or for people who are very old.

However, as you are now well aware, this is not the case.

Note: As was mentioned earlier, due to this confusion people are now increasing using the term “unemployment insurance”.

More than one-third of all “disabilities” occur among people who are under 45 years of age, so disability insurance can benefit both young and old.

Insurance Fraud

The prospect of receiving a full salary but not having to work for it is an attractive prospect, and one that has led many individuals to continue claiming insurance even though they were physically able to work.

For example, if you have injured your back in a car accident and then make a claim for the time you were unable to work, this would be a perfectly legitimate and legal claim.

If however, you continued to claim your unemployment insurance after you had recovered, then you would be committing insurance fraud which is illegal and could result in imprisonment.

Fraud is a lot more common than you might think, especially when it comes to insurance. This is something the insurance companies are well aware of, and as a result take active steps to prevent.

If you are suspected of falsely claiming insurance, one common tactic the insurance companies use is to hire a private detective who will observe you during the day, and take pictures of anything you do which suggests that you are physically able to work.

There have for example, been instances of people who were claiming disability for a broken leg, yet they were later pictured running in a marathon!

So if you ever think of falsely claiming unemployment insurance, then think again, as you will get caught eventually and when you do you will be in a lot of trouble!

What Are You Insured For?

Since there are a lot of different companies from which you can apply for disability insurance, there are also a lot of different types of policies available for a wide variety of needs. It is therefore very important that you are fully aware of what disability coverage your policy will give you.

For example, some policies offer short-term coverage that covers you for a few months, whilst others offer long-term coverage that may cover you for a year or longer.

Another thing to take into consideration is where your policy will cover you. For example, if your disability policy only covers you during an injury you suffer at work, but you suffer an injury at home, then your disability policy will not pay out.

It is therefore best to get an insurance policy that offers you total coverage, so that you will be compensated for any injury you suffer at work or at home.

These types of policies are generally more expensive, but since you can’t predict where you might be injured, having total protection will give you added peace of mind and security when taking out a coverage plan.

Insure Yourself Against All Risks

One thing that is worth keeping in mind when taking out unemployment insurance is that you want to take out a policy which you can afford to pay.

Obviously, the greater the level of coverage that you take out the more you will be protected in the event that you lose your job and become unemployed or are unable to work because you had an accident.

But with greater coverage comes greater cost, so you need to ensure than in the long run any policy which you do take out is something that you will be able to count on being around for quite some time so that it will be there for you if you ever need it.

Most people are advised to start off with a lower level basic coverage, and then to gradually build on that policy as they start to earn more money from their job.

You also have to take into consideration your other expenses, such as those related to your family and any other insurance policies that you currently have.

The idea should be to maintain an adequate level of coverage in all areas of your life rather than just trying to protect yourself against one specific kind of risk.

This is recommended because you never know what type of insurance policy you are going to need to make a claim on in the future, and therefore, you want to be equally covered in all areas to protect you from such risk.

Although the current state of the economy is making unemployment insurance much more popular than it once was, this doesn’t necessarily mean that you should put everything into this type of policy as it will then leave you exposed in other areas of your life.

Savings

If you can’t afford to take out the best coverage plan, then a good option to supplement any insurance policy you take out is to regularly save some money from your monthly income in an emergency fund.

This is simply money that you tuck away for a rainy day, and is therefore something that you will only use in emergencies.

The good thing about having an emergency fund is that providing you plan ahead and start early enough, you should be able to save up quite a sizable amount of money which you will then be able to use to support yourself and your family in the event that you become unemployed.

Even if you never end up losing your job and becoming unemployed, then having some money saved away in a bank can be extremely advantageous as it is money that you could then use for your children’s education or even for your own retirement.

Conclusion

Unemployment insurance is there to help you recover if you ever lose your job or are not able to work due to injury.

Considering how unstable the current job market and economy is, this is definitely a type of insurance that is worth seriously thinking about especially if you have a family who is dependent upon your source of income.