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Involuntary unemployment insurance provides coverage to pay debts in the event that someone becomes unemployed. It may be packaged with a loan or offered as an extra rider on a service like a credit card. In addition, consumers can consider options like income protection insurance, to kick in if they can no longer work, and payment protection, which can cover or suspend payments during periods of involuntary unemployment. The best option can depend on the type of debt and the situation. Insurance agents may have more information.
With this product, people pay a set amount for a monthly premium. They may need to hold the insurance for a certain number of months before it becomes effective, a tactic designed to prevent people from buying insurance right before a period of involuntary unemployment. If an employer makes layoffs, the insurance can provide some money to cover monthly payments on debts like mortgages, credit cards, and car loans.
Some coverage is tied to a specific loan and the payments may go directly to the financial institution. In other cases, involuntary unemployment insurance pays out to the consumer, who can decide how to apply the money. Payment protection plans may wipe out balances altogether on credit cards, appliance credit, and other debts with relatively low balances. Usually there is a waiting period before insurance payments will be issued, which makes it advisable to have some money in savings to cover expenses for a few months.
Before insurance companies will pay out, they typically require proof that employment is truly involuntary, and isn’t excluded from coverage. Someone who quits or is fired because of negligence or contract violations does not qualify. Falsifying documentation to access involuntary unemployment insurance can result in fines and other penalties, because it is a form of insurance fraud. While collecting insurance, people may also be eligible for unemployment benefits through government agencies.
Time periods covered by involuntary unemployment insurance can vary; most plans last only a few months. At this point, borrowers who have not been able to find work may need to communicate with the lender. This can include a request to suspend payments, forgive part of the debt, or negotiate monthly payments down. Hardship deferments may be available on some debt to help people remain in good standing while they deal with problems like unemployment. The terms of the insurance policy should be read carefully to understand what is covered, and for how long.