Make unemployment insurance work

We talk about insurance that covers you if you lose your job or are unable to work, specifically looking at how to overturn unfair decisions when an insurer rejects your claim.

You can get insurance for when you're out of work due to ill health or redundancy. Insurance against redundancy is called unemployment insurance - although it doesn't cover you for other causes of unemployment, such as ill health. You can also get 'accident, sickness and unemployment insurance', which is more common and covers you for both ill health and redundancy.

This latter insurance is more typically called payment protection insurance (PPI), which justifiably has a bad reputation. It's usually sold by your lender, mortgage company or credit-card provider to cover your repayments, although you can also buy it separately, and you can get it to cover a portion of your income rather than to meet debt repayments.

If you buy direct through your lender it will be very expensive. If you buy it from a stand-alone insurer, such as British Insurance, you'll pay 1/10th or 1/20th of the price. That's when it's cheap. But it's cheap for a reason; there are many exclusions and onerous terms in PPI, and the benefits are limited, usually to 12 months of payments.

You should first ascertain if it's good for you. This article is a good starting point: Is unemployment insurance up to scratch? Even so, the small print can easily catch you out when you try to claim. My advice is not to simply accept it if your claim is rejected. If you feel you've been treated unfairly, the Financial Ombudsman Service (FOS) may overturn the insurer's decision. It's been doing this more and more of late! Here are a couple of examples of its decisions:

Forewarned is fore-disarmed

If your company tells you, officially or not, that your job is at risk of being made redundant, you shouldn't rush out and buy insurance. If you do, it will likely not be valid against redundancy.

Also, if you're made redundant during the first 30-120 days (depending on the insurer) you won't be covered. You have to pay one to four months of premiums before cover really begins for redundancy.

Now for the good news

The good news is that just because a newspaper reports that your company is facing a difficult period, and just because your colleagues may be gossiping about possible redundancies, that doesn't necessarily mean you can't get cover. This happened to Miss J, who ended up losing her job from a high-street retailer. Her insurer rejected the claim and she went to the FOS, which forced the insurer to pay up. Gossip is just gossip and you really can't believe what you read in the papers!

Her story gets better. During the first 90 days of cover, Miss J's employer announced that it was consulting staff about possible job losses throughout the company. Her insurance said that she couldn't claim for unemployment if she became 'aware of any increase in the risk of unemployment' within 90 days. When she eventually lost her job, after the 90 days, this didn't matter to the FOS. The FOS took the view the exclusion was too broad to be fair. It said:

'On a strict reading of the exclusion, if, for example, there was any deterioration in the UK's economic environment during the first three months of the policy, then this might result in policyholders losing all unemployment cover under the policy.

'If the insurer wished to exclude cover because a policyholder's knowledge or circumstances changed within the first three months of a policy, then it needed to word its exclusion very clearly - setting out what change or changes had to take place for the exclusion to apply. This had not happened in this case. The insurer also needed to ensure that consumers were made aware of the exclusion at the time they bought the policy. Again, this had not happened here.'

Twice the pain

Pre-existing medical conditions are one of the most contentious areas. If you know you've got a serious problem, no insurer will cover you.

But let's get straight to some more good news

Just because your condition is pre-existing, it doesn't necessarily mean you can't benefit from this insurance. One man, Mr G, had some minor breathing problems and had consulted his doctor. His doctor had made some notes about what it could be, including a serious illness, but had not shared this with Mr G. Mr G took out PPI and later became too ill to work. It turned out that he had that same serious illness that the doctor had considered. The insurer refused to cover him.

The FOS decided that, as Mr G had not known he was suffering from a serious respiratory problem and that no definite diagnosis had been made, the insurer must pay up.

Some tips

• If the exclusions in the insurance are too onerous for you, consider income protection insurance instead. Indeed, I recommend that you strongly consider buying this much better quality insurance before you buy PPI, home insurance or even a new TV! Read about it here.
• Income protection insurance protects you against loss of work through ill health, not redundancy. Therefore it makes sense to build up some savings in the case of redundancy if you don't buy insurance to cover it.
• If it looks like redundancy is imminent, look for extra or alternative work immediately just in case.
• If you feel you have a complaint against your insurer, you should follow the procedure explained here by the FOS.

Get help from lovemoney.com

If you're worried about losing your job or having trouble claiming from an unemployment insurer, you're not alone. Here at lovemoney.com, we have a range of tools you can use which should be able to help you.

First, adopt this guide: Build up your savings and then maybe this one: Set yourself a budget and stick to it

Next, watch this video: The impact of the recession

And finally, why not have a wander over to Q&A and ask other lovemoney.com member for advice on your specific circumstances? You may find others have had similar experiences and can tell you what worked best for them.

Protect your family. Compare life insurance through lovemoney.com

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