Tata Consultancy Services Ltd’s decision to cut roughly 12,200 jobs this fiscal year, largely impacting mid- and senior-level staff, is sending shockwaves through India’s IT sector.
As the nation’s largest IT services firm undertakes its biggest-ever lay-off in the company’s history, driven by a shift to “future-ready” skills and aggressive AI adoption — job loss insurance, once a niche product, is suddenly back in sharp focus.
What is job loss insurance?
Job loss insurance offers individuals the financial security that helps them meet essential expenses during periods of involuntary unemployment, acting as a crucial bridge until alternative employment is secured.
It helps to cover financial obligations such as loan repayments, rent, utility bills, and even medical expenses that can be managed without pulling out long-term savings.
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It is a practical choice for people who are concerned about the possibility of losing their jobs as sectors such as IT, startups, and manufacturing are undergoing frequent restructuring and layoffs, which are no longer rare or limited to economic downturns, said Gurdeep Singh Batra, Executive Vice President of Bajaj Allianz General Insurance.
How it works — payout, premium
The payout structure under job loss insurance policies is usually fixed and defined in advance. Some policies provide a monthly payout for a set period of time, while others provide a lump sum payment.
Most policies operate on a graded benefit model, where the insured receives a pre-decided monthly amount for a specific period during unemployment. However, the payout begins only after the insured individual has remained unemployed for a minimum number of days.
The insured usually receives up to 70 per cent of their income; however, it can vary from insurer to insurer.
Citing an example, Batra noted, “The insured can receive ₹10,000 per month for up to three months, depending on the number of days of continuous unemployment and the waiting period applicable,” adding that “Some variants offer increasing benefits over time, such as ₹5,000 for the first month, ₹10,000 for the second, and ₹15,000 for the third month, encouraging continued job search efforts.”
Job loss insurance comes with a premium, which is mostly based on factors such as the salary of the individual that is insured, duration of the policy, employment risk profile, and whether it is purchased as individual or group cover.
“Group policies offered through employers or banks often have lower premium rates. Premiums can also vary based on the policyholder’s industry or job role, with higher-risk sectors potentially attracting higher premiums,” Batra said.
Who is eligible to get a job loss insurance?
This insurance only applies to salaried employees from the formal sector. The employees can be working with a multinational corporation or startup, but as long as their company falls under the formal sector, they are insured, said Sajja Praveen Chowdary, Director and head of Policybazaar for Business.
Job loss insurance typically covers involuntary unemployment resulting from both commercial and medical reasons.
“A person is covered only if they are terminated due to organisational restructuring such as downsizing, cost-cutting measures or closure of the establishment following government or regulatory orders. Looking at current cases, even AI integration in the company causing the job loss can be covered under the insurance,” Chowdary said.
The following are the cases when job insurance does not provide any coverage:
- Self-employed or unemployed individual
- Unemployment during probation period
- Unemployment in case of early retirement or voluntary resignation
- Job loss in case of an already existing illness
- Job losses such as suspension, retrenchment, termination for underperforming or fraud
Scenarios when your claim can get rejected
Job loss insurance is still an evolving product in the Indian insurance landscape. Hence the scenarios of rejection can also differ from insurer to insurer, based on their terms and conditions, Batra specified.
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Common scenarios include voluntary resignation, retirement, job loss during probation, or termination due to disciplinary action or misconduct. Other than these, claims are also not payable if the employment was contractual, seasonal, temporary, or if the insured was not on the direct payroll of the employer.
Unemployment resulting from pre-existing illness or a public health emergency, like a pandemic, is typically excluded unless specifically agreed to be covered.
Is this insurance worth it?
While this policy may appear to offer a safety net, there’s a catch. Many multinational companies offer up to three months of severance pay, after which employees are expected to resign, which is technically a ‘voluntary resignation’.
“The employer offers this option to help an employee avoid the stigma of being sacked. Nobody wants that remark on their resumes, hence companies offer this provision,” said Chowdary.
However, since it’s a voluntary resignation on paper, it disqualifies them from claiming job loss insurance unless they can prove they were laid off.
During such a time, it’s important for a person to have other options to sustain their livelihood until they land a new job. Here are some options:
- Create an emergency fund: Set up a designated fund and save up at least 6 months’ worth of your monthly expenses to be prepared for unforeseen circumstances.
- Consider adding insurance to your loans: In this case, if a person loses their job, the EMIs of the loans are taken care of by the insurer. This helps the insured to decrease the burden of EMIs without losing their assets.