Dubai: A hard worker in every sense of the word, Nelson is the most indispensable member of the team he heads. His colleagues are impressed by his talent and he always goes the extra mile. He stays late all the time, making sure deadlines are met. Then, one by one, his subordinates start disappearing as business slows down. And as rumours spread that his unit will eventually close, his heart sinks.
Stories of downsizing, slowing sales, cancelled projects and slashed company budgets are indeed very sobering and it's no surprise everyone worries about job security these days. But anyone can lose their job for a variety of reasons, be it economic or personal. No matter the financial climate, the harsh reality is that no one's job is 100 per cent secure.
When unemployment hits home, people go through a great deal of stress and anxiety, as bills eventually multiply and debts mount. How do you cope financially if you find yourself in the same situation? Fortunately, there are several options that can help ensure there is enough cash to dip into in the event of redundancy.
If you were in the United States, your first line of defence would probably be to take out insurance that provides cover in case your job is made redundant due to economic reasons. This financial product, also known as unemployment or redundancy insurance, enables a policyholder to get some cash or compensation that can help them during the critical period.
Savings pot
Unfortunately, here, there are no insurers selling a similar policy. In the absence of such a product, financial professionals advise before things get bad, get your personal finances in order.
Try to set aside a savings pot equivalent to about two to three months of your salary. That will serve as a rainy day fund and should be enough to pay for the bills and daily living costs when you lose your job.
"Gain a thorough understanding of your income, outgoings, savings and investments," advises Gurnos Stonuary, business services director at Nexus Group.
It is wise to pay off outstanding credit card debts, reduce outgoings to a minimum, and save for important things such as your children's education and your own retirement.
"Whatever state your finances are in, you should have some sort of emergency fund in place. If things go awry through job loss or illness, this can be a vital lifeline. A general rule of thumb is to have two to three month's income readily accessible and kept in a low-risk financial product," Stonuary added.
If you have existing debts, loans or are heavily dependent on credit cards, consider other ways to take care of your repayments when you are unemployed.
Ideal product
Some banks in the UAE offer insurance cover on loans and credit cards. One of these products is called involuntary loss of employment (ILOE), which protects customers in the event of redundancy through no fault of their own.
"This is an ideal product for customers who have high exposure to liabilities… It is underwritten on a group basis and hence the premium would be very nominal," says Shekhar Krishnamurthy, head of retail assets and liabilities at Emirates NBD. "This does not protect the customer from the entire loan outstanding, but will cover three to six equal monthly installments. In almost all cases in the UAE, this is offered as a part of portfolio insurance which is used for securing various asset portfolios [cards, personal loans]."
Other banks, such as Mashreq, don't have redundancy-related insurance cover for mortgages or personal loans, but credit card customers are given the option to purchase involuntary loss of employment cover.
The insurance policy would pay ten per cent of the credit card outstanding for each month the cardholder is unemployed. However, the maximum payout is limited to Dh4,000 per month and the period of such cover would be for a maximum of one year or until the cardholder secures another job.
