How to buy cheap unemployment insurance

What is unemployment insurance?

Unemployment insurance (sometimes known as income protection insurance or unemployment protection insurance) is an insurance policy that pays out if you lose your paid employment.

It can cover your monthly outgoings if you are unable to work due to an accident, sickness or redundancy. Not all policies cover you for redundancy, so make sure you know what type of insurance you’re taking out. If you do want redundancy cover, check the terms and conditions of the policy to make sure you're eligible for it and under what circumstances it would pay out as coverage differs between providers.

How does income protection work?

Income protection is a type of unemployment insurance that pays out a cash amount if you can’t work due to an accident or sickness. It doesn’t cover you for redundancy. The amount you decide to insure yourself for should be enough to cover the household bills and expenses you would still have to pay while you were unable to work.

If you need to make a claim on your policy, the cash you receive is tax free and paid monthly to help you cover your bills. The pay out can last for one or two years or until your chosen retirement age, depending on the policy you choose.

It doesn’t cover the whole of your salary but usually up to 70% of it, depending on the amount you have agreed with your insurer.

What happens if I make a claim on my unemployment insurance?

With an income protection insurance policy, you would make a claim if you were unable to work. You would contact the insurance company to make a claim.

If you qualify for a pay out, the policy will pay you according to the terms and conditions. Policies don’t pay out straight away – you might have to be off work for a month or more before receiving the monthly amount. This is known as the waiting or excess period.

With redundancy insurance there is an initial exclusion period after you’ve taken the policy out during which you can’t claim. This could be two to three months or more. After this you’ll have a waiting period as with income protection, so you’d need to wait a month or more after losing your job to receive the monthly payouts.

Redundancy insurance, and combined accident, sickness and unemployment (ASU) insurance, which also includes redundancy cover, usually pays out for 12 months.

Unemployment insurance is not a savings plan. When the insurance cover ends you do not get any money back. If you have not made a claim, you will not receive anything. If you pay the regular premiums on time you are protected for as long as the policy is in force.

What types of unemployment insurance are there?

There are two main types of unemployment cover – short-term (usually paying out for one year) redundancy, accident and sickness or ASU insurance, and income protection cover, which can pay out until retirement age if you need it to but you can also choose one, two or five-year payment periods.

Mortgage payment protection insurance (MPPI) is another type of short-term unemployment insurance designed to cover just the cost of your mortgage.

Short-term unemployment cover would protect you for a year until you found another job or were well enough to go back to work and is a cheaper option.

Longer-term income protection insurance can protect you if you are permanently unable to work but is more expensive to buy.

How much income protection insurance do I need to buy?

Income protection, or unemployment insurance, should give you enough to cover your monthly household bills including food, heating and lighting, council tax and your rent or mortgage. 

You could also choose to include an amount to help you pay off any outstanding debts you have, for example credit cards or personal loans. You can include the monthly debt repayments in your calculations so you know you would be able to keep up the repayments even if you were out of work.

When you buy unemployment insurance you decide how much cover you need or can afford to pay for, and then you pay a monthly premium. You can work this out by looking at your monthly costs and adding in any one-off costs such as annual home or car insurance.

How much does unemployment insurance cost?

The cost of your unemployment insurance policy depends on a range of factors:

• How much you want it to pay out each month

• How long you want it to pay out for

• The waiting period you choose – the longer the waiting period the cheaper the policy

• The length of the initial exclusion period in the case of redundancy cover

• Your age

• Your occupation and employment status

• Whether you are a smoker

• Your medical history and lifestyle in the case of income protection

Compare income protection quotes with Uswitch

Does income protection insurance cover redundancy? 

Income protection insurance doesn’t cover redundancy but other types of unemployment insurance can cover it.

Some policies won’t cover you if you’re self-employed or on a short-term contract and you won’t be able to claim on your policy if you take voluntary redundancy. If your employer has already signalled that it intends to make employees redundant when you take out the policy, you also won’t be eligible to make a claim.

You won’t be covered for redundancy insurance if you were fired from your job or decided to resign either.

It’s important to check what you will and won’t be covered for before you buy the policy by reading the small print.

How has the COVID-19 pandemic affected unemployment insurance policies?

During the pandemic, the uncertainty of the economy and jobs market meant that many insurance companies withdrew their unemployment insurance policies but the number available has now increased again.

If you took out your unemployment insurance before the pandemic you will still be covered. Some providers have tightened their eligibility criteria for new policies but many have now introduced extra health and wellbeing benefits.

Compare income protection quotes with Uswitch

Are there alternatives to unemployment insurance?

If you are unable to get unemployment insurance, there are other ways to protect yourself financially:

• Build up savings of at least three months’ worth of household expenses, which can help you cover bills and household costs in the short term.

• Try to pay off any debt you have so you are in as good financial shape as possible in case your income drops or you lose your job. Just make sure you have enough savings left to cover your bills if this were to happen.

• It may be possible to get a credit card if you are unemployed but you should think carefully about whether this is the right option for you. Find out more in our guide to .

Critical illness is another type of insurance to consider. This pays out a cash lump sum if you are diagnosed with one of a list of critical illnesses, such as cancer or a heart attack. It can be cheaper than unemployment insurance but only covers you for specific serious conditions and gives you a one-off payment rather than a monthly amount. 

Other ways to safeguard your finances

You can also protect your finances by shopping around for the best deals on utilities, broadband, mobile phone contracts and motor and household insurance. You could save hundreds of pounds a year by shopping around at renewal time rather than just going with the renewal quote from your existing provider.

By cutting costs and thinking about where your money goes each month, you can keep a closer eye on your budget and cut out areas of unnecessary spending.

If you lose your job and think you’ll soon be able to get a new one, but you need to borrow some money in the short term, you could consider using your bank overdraft or a personal loan. You should always have a plan for repaying the money though. Don’t take out any extra credit if you have no way of paying it back – it will only make your financial situation worse.

You can also apply for benefits if you don’t have a job or you are forced to work fewer hours as a result of changes to your employment contract.