Unemployment has been a major problem in India for many decades. It has even snowballed into other socio-economic issues like a spike in crime rates and the rate of suicide. According to recent reports, nearly 31 million people across India are unemployed. The situation has not improved as far as the unemployment scenario is concerned. Therefore, many experts have challenged the presence and sustainability of unemployment insurance in the nation.
So, what exactly is unemployment insurance? Let's understand the concept better. In the simplest of terms, under unemployment insurance, the insured gets benefits if they have lost their job due to factors which are not under their control. It is offered by governments and not by insurance agencies. The benefits of the same have to be utilised within a limited time frame. There are few eligibility criteria which have to be met for getting insurance claims related to unemployment.
Read on to find out more information surrounding unemployment insurance in the Indian and global context.
Unemployment Insurance Claims
Unemployment Claims Globally
Many countries across the globe offer unemployment insurance cover and related benefits to their citizens. Take, for example, Finland and Norway, where the unemployment insurance claims are generally between 80-90% of the last drawn salary. In countries like Germany, Japan, Sweden, and Israel, these claims range around 60% to 90% of previously drawn pay. In the USA, unemployed citizens are offered a maximum of 27% of their last income as unemployment benefit. Same is the case with Australia. Single and childless individuals in the country are entitled to 28.9% of previous income as unemployment benefit.
Additional Reading: All You Need to Know About Employees’ State Insurance Corporation
Unemployment Claims in India
Most Indian citizens are unaware of the unemployment benefits offered by the Indian government. The labour laws in the country are structured to ensure the larger benefit of the working class. Working-class can avail many benefits under the labour laws and various insurance benefits can be availed under the Employee State Insurance Act, 1948. Since there is little awareness around these, unemployed individuals in India do not generally avail these benefits. Let’s take a closer look at the popular unemployment schemes/benefits offered in India.
Rajeev Gandhi Shramik Kalyan Yojana (RGSKY)
The Government of India offers unemployment coverage to unemployed individuals under the scheme known as Rajeev Gandhi Shramik Kalyan Yojana (RGSKY). RGSKY was first introduced on April 1, 2005. Individuals who are employed can avail these benefits under the Employee State Insurance (ESI) Act. The benefits are offered to individuals who lose their jobs and become unemployed involuntarily. Some of the reasons are disability due to injury at the workplace, shutdown of business, etc. The benefits offered under this scheme along with terms and conditions are revised periodically. The policy is mainly aimed at benefiting Indian youth who are affected due to rising unemployment in the nation. Some of the key features of RGSKY are as below:
- Individuals with a minimum of three years of work experience are eligible to avail benefits under the RGSKY as per the ESI Act.
- The allowances are offered for a maximum period of 1 year.
- Individuals can make insurance claims within 6 months of unemployment start date.
- Medical benefits can also be availed by the insured and his/her family within the 1 year.
- Once the individual is employed, the allowance provision is discontinued.
Private insurance companies cannot provide complete unemployment benefits to all eligible individuals, especially since the rate of unemployment has been rising. It is up to the government to take initiatives in this case. It is also important to ensure that the policy benefits can be availed by maximum people and there is sufficient awareness around the same.
Protection Against Job Loss
It makes sense to have a back-up and financial reserves for sailing through difficult times such as unemployment. One can begin by setting up an emergency fund by keeping aside a minimum of 30% of total income. It is also important to make short-term investments which offer flexible liquidity for pooling an emergency fund.
Insurance companies always calculate the probability of occurrence of risk while offering insurance cover. For example, the risk of death of an individual or a person catching a critical illness as compared to the loss of a job. If compared, there is a higher probability of the latter than the former. Hence, unemployment or job-loss policies have a higher premium which leaves policyholders with very little benefit. For individuals who want to protect themselves against job-loss by investing in job insurance, here are some of the important features to take note of:
Benefit to Insurance Provider:
While job insurance helps insured individuals, it also benefits insurance providers. The primary reason behind this is that the insurance provider offers job insurance to all eligible applicants without verifying whether they need it.
Job Loss Reason:
To claim job loss insurance, the policyholder has to provide a valid reason for job loss to the insurer. This is one of the deciding factors for job insurance cover.
Applicants are given the choice of opting for a job insurance cover depending on the probability of job loss and the premium to be paid. Premium payments for job insurance range between 3% to 5% of the total cover.
When job insurance which is bundled with a home loan protection plan, the tenure is restricted to five years. The insurance cover is not offered for the entire duration of the home loan tenure.
List of Job Insurance Plans
The Indian insurance market does not have many options available for job insurance. It is usually offered as an add-on or additional rider combined with personal accident policies or illness insurance covers. Here are some of the insurance plans that offer job loss insurance:
- Home Suraksha Plan by HDFC Ergo
- Safe Loan Shield by Royal Sundaram
- Secure Mind by ICICI Lombard
As the job market in India has always remained fragile and volatile, job insurance is a sensible option to offer to individuals. While job insurance acts as a temporary relief, it can be a saviour for many who face the trauma of sudden job loss.