Seeking cover for loss of income

Policies like personal accident, critical illness and job loss can offer financial support in tough times

A grim job scenario in the market has led home loan borrowers to look at taking a job loss insurance along with a term plan at the time of borrowing, according to Sukanya Kumar, director at loan advisory firm Retaillending.com.

Even lenders agree that borrowers have been enquiring about job loss covers at the time of taking a home loan. “Our life insurance partner does not offer a job loss cover. But we have definitely seen enquiries about the job loss cover go up as many fear of losing their jobs in the current market situation,” said an SBI executive.

The insurance industry does not have a stand-alone job loss cover. At present, only ICICI Lombard offers this cover as part of its critical illness plan Secure Mind. Bajaj Allianz General Insurance offers a similar cover with its women-specific critical illness scheme. But its spokesperson said the company did no longer have the product as per the new guidelines. This cover can be given only with life cover.

Job loss is an additional feature loaded to a policy that covers three equated monthly instalments for any one loan. But there are pre-conditions, too. The job loss has to occur due to retrenchment, layoffs or for health reasons. The policy does not cover job loss if the employee is asked to resign or leave on account of poor performance. This is because the insurer considers such events as controllable and insurance is supposed to cover only unforeseeable risk.

The sum insured is determined on the basis of the outstanding loan. A Rs 25 lakh policy would cost you Rs 70,000 and the add-on benefit of job loss cover will cost you an additional three to four per cent of the premium, said Sanjay Datta, chief – underwriting and claims at ICICI Lombard. The insurer covers the entire loan tenure, but the policy is given out for a maximum of five years. It will need to be renewed thereafter.

Datta advises having a job loss cover in these times to avoid default on loan and restrict your future lending capability. ICICI Lombard has seen the demand for Secure Mind increase 30 per cent in recent times.

However, industry experts opine saving the premium in an emergency fund will be a much better idea. They advise looking at these product only from critical illness coverage perspective, it would pay a lumpsum if you fall ill. A critical illness policy compensates the insured for any loss of income. Critical illness cover can be taken in two ways – a standalone policy from any general insurance company or as riders on a life insurance policy. Riders come cheaper than stand-alone policies because they come as an additional part of the base policy. However, this policy does not make much sense if you don't have any dependents, which is true in the earlier years of your career.

The other option to substitute the loss of income would be owning a personal accident cover. This is especially true for youngsters who have dependents. Such indviduals should at least have a personal accident cover even if not a heath plan. Personal accident plans cover against death or disability due to an accident. It provides financial support to the policyholder if he is disabled after an accident. And it can be as cheap as Rs 225 a year for a Rs 5 lakh policy.

You can take a cover of up to eight times your annual salary. Apart from the basic death and permanent disability cover, you can buy protection against partial and temporary disability, even loss of livelihood.