Many have lost their jobs to this pandemic, while others seem vulnerable. With the fall in economic activity, some industries and their jobs have taken more hits than others. Safety of jobs is no longer a given. Is it smarter therefore to take a job-loss cover?

What is it?

First of all, let’s understand a job-loss cover. It is an insurance cover whereby you get compensation in case you lose your job. In India, there is no standalone job-loss cover available from a private insurer and it only comes as an additional rider to your existing personal accident cover or critical illness cover. While a stand-alone unemployment policy Rajiv Gandhi Sharmik Kalyan Yojana (RGSKY) is available on behalf of the Government, it is primarily for those in the lower-income category. These covers are available only for permanent employees and not for those self-employed or on contract.

How does it work?

Suppose, one has a personal accident cover and opts to go for an additional job-loss cover. In case of job loss, the family is entitled to compensation provided it is due to disability or death of the policyholder from accidents. And if it is part of critical illness cover, then compensation is given only if it is due to illness. In other words, its coverage is limited.

And, if the job-loss cover is part of a home loan protection plan, EMI payments are waived when one loses the job. These covers are however available only for a limited period of up to five years while the claim can be made only once during the tenure of the policy.

The biggest drawback of these policies is the extent of exclusions, which literally makes the cover worthless. 

Also at best, you get paid about three EMIs on your home loan, which in turn are further subject to upper limit such as 50% of monthly salary for an EMI reimbursement. For instance, if your home-loan EMI is Rs 60,000 and the cover has an upper limit of 50% on the last drawn salary. In that case, if you were earning Rs 1 lakh a month, your compensation will be Rs 50,000 a month for a maximum of three months. 

Furthermore, there is a waiting period of up to three months before the insurance cover kicks-in. 

The Costs

The premium for a home loan cover is dependent on a lot of factors including the age, credit rating of the insured’s employer and the policy tenure.

Typically, it costs about 3-5 % of the sum assured. So, for every lakh of cover on your home loan, you pay Rs 3,000-5,000 annually. If you buy it as an add-on to your accident or health policy, sometimes insurers don’t even offer the usual discounts.

The challenge

The biggest drawback of these policies is the extent of exclusions, which literally makes the cover worthless. Following are the list of exclusions:

1. Any retrenchment, termination and suspension due to underperformance 

2. Job loss due to disciplinary action

3. Job loss during the probation period

3. Unemployment due to voluntary resignation or early retirement

4. Job loss due to existing illness or health conditions

This literally leaves limited occasions such as mergers and acquisitions or shutdown/bankruptcy to seek claims. Moreover, in order to claim settlement, you need to provide documentary proof of retrenchment or termination. This is easier said than done since employees are often asked to put in their papers than be handed over a pink slip. 

Also, insurers differ in their take on what constitutes a job-loss. It’s unclear if you will get a settlement when the employer offers a severance package or gives a notice before termination of the contract. 

The Alternative

Considering the narrow scope of the add-on cover and its inherent limitations, it is better to scout for alternatives. And building a robust emergency fund is one of the smarter options. If you do not have it slowly start bumping it up to 6-12 months of your income. This will take care of contingencies such as job loss and much more. Parking that money in a liquid fund would ensure you earn a decent growth on it as well. 


Job-loss cover has too many exclusions and is only available as an add-on. You are better off with an adequate emergency fund instead.