The new Conservative/Liberal Democrat coalition government is planning £6 billion worth of public spending cuts and it is no secret that a large proportion of those savings will come in the form of job losses. In this light government workers can be forgiven for investigating their options for unemployment protection, whether to provide cover for their mortgage repayments or their general earnings.
Common unemployment policy restrictions
It is unfortunately that case that stipulations in mortgage unemployment insurance plans could lead to many government workers being unable to claim should they take out a policy and subsequently lose their jobs.
All unemployment insurance plans in the market have a clause in the contracts stating that unemployment benefits will not be paid “if at the start date you knew you were going to be made unemployed or had reason to believe that it was likely to happen”, or a clause similar in meaning, albeit with different wording.
The current issue in that market is whether the government’s announcement of spending cuts, with resulting redundancies, constitutes reasonable knowledge of pending redundancies. It is entirely possible that insurers could claim that government workers only took out the unemployment insurance cover because they ‘had reason to believe that it was likely to happen’.
This is still a fairly new issue within the payment protection market and insurers have not provided sufficient direction on their individual stances.
Fixed term contract government workers
A large number of government workers are on fixed term contracts with their respective departments or agencies and this adds an extra layer of complexity as to whether these individuals are eligible for cover.
If this type of worker are looking for cover for an existing mortgage some policies require that they have been employed with the same employer for at least 12 months and have not been registered as unemployed in the previous 24 months. If this is the case then the policy should be valid for an unemployment claim if their contract is cut short.
It may be that case that the government just let the contracts for these workers run out rather than having to let then go early, which would therefore remove then need to pay them severance pay. There are very strict conditions on whether fixed term contract workers are eligible to claim should their contract come to a natural end. The policy stipulations for an eligible claim are usually as follows:
- You have been employed continuously with the same employer for at least 24 months;
- Or, you have been employed for 12 months and your contract has been renewed at least once.
It is very important to note that the specific details of each policy do vary so it is important to check the policy wording before making any mortgage payment protection purchase.
Can unemployment cover be taken out?
With government workers there is definitely a risk that the policy may not provide unemployment cover should a claim need to be made. In this respect you may be better off saving the premiums payments each month.
If you have decided that you would like to take out cover in any case it is best not to purchase your policy online. A much better option is to speak to an independent insurance broker about your specific situation and make a paper based application. With a paper based application you can disclose more information about your current position. Answers to the following questions should be disclosed as a bare minimum:
- Are you aware of any forthcoming redundancies in your department?
- Have there been any redundancies in the previous 12 months?
- Do you feel safe in your current job role with regard to potential unemployment?
The more disclosures you make about your risk of unemployment the less chance there is for the insure to deny a claim should one need to be made. After considering the disclosures you have made it is then up to the insurer whether they wish to provide you with cover. It is important to keep a copy of the disclosures you have made to provide as evidence should a conflict arise in the future.