Unemployment insurance is a form of income protection insurance policy. It can also be referred to as employment protection insurance or work insurance.

This type of insurance can provide cover if you become unemployed due to redundancy. This can ensure you have a form of income to help cover financial commitments such as rent and bills, for example.

If you lodge a successful claim, your insurer can step in and pay out a monthly income. Unemployment insurance does not offer you cover for voluntary redundancy or resigning from your job.

It's different from other types of income protection insurance because it only covers redundancy or if you're let go from your job. A broader income protection insurance policy may also provide cover if illness or injury prevents you from working and earning your salary.

During your application you'll be asked about your employment, typical salary and your preference of 'deferral period'.

The latter is the length of time following a successful claim that you wait to begin receiving payments. You can typically select between a few weeks, 6 months, 1 year and 2 years. Choosing a longer waiting period may reduce what you pay in premiums.

If you buy an unemployment insurance policy, you'll be required to pay premiums each month. In return, you can make a claim if you become unemployed, providing that:

1. You are not at fault for your unemployment

2. Monthly premiums have been paid on time

3. The initial claims exclusion period has run its course

When you make a claim, you usually need to provide proof of identity and address. You'll also need evidence of your income, such as payslips and confirmation of your dismissal from your previous employer. You may also need to list any financial commitments, including a mortgage, rent payments or dependants.

Think of unemployment insurance as a financial safety net should you ever lose your job unexpectedly.

This could be due to external economic factors or a change in the business’s priorities. If the worst should happen, would you be able to meet your financial commitments while out of work?

If you don't have a pot of savings to tide you over periods of unemployment, then unemployment insurance could help you through these times.

Both policies include similar exclusions relating to unemployment. Any claim you make may be rejected if any of the following points apply to you:

• You take voluntary redundancy

• If any notice of job loss is communicated to you prior to applying for a policy

• If you're fired with cause, such as misconduct, poor performance or criminal offences

In addition, ASU cover also contains common exclusions, such as:

• Any pre-existing medical conditions

• If illness or injury is a result of the misuse of drugs or alcohol

• If injuries are self-inflicted

There are no set premiums for unemployment insurance. Instead, what you pay is determined by your personal circumstances and the provider you choose.

These factors include:

• The type of policy you choose: An ASU policy offers a broader range of cover compared to the unemployment-only option and tends to cost more too.

• How much you want to cover: You can usually set your cover amount to 50% to 70% of your typical income. The higher the cover amount, the higher your monthly premiums are likely to be.

• The length of your policy: Depending on the policy you buy, you may have the option of selecting a 12, 18 or 24-month cover period. Generally, the longer your policy is, the more you pay.

• Your deferred period: It's the length of time between a successful claim and when you begin receiving payments. You can select the length of your deferred period, but usually the greater this period is, the cheaper your premiums may be.

To calculate your cover amount, it's important to consider all of your monthly outgoings. Doing this will help you determine an accurate cover amount, enough to cover the essentials, but not so much that you overpay for what you actually need.