<i>Illustration: Andrew Dyson</i>

Sign of the times … insecure workers have snapped up unemployment cover. Illustration: Andrew Dyson

Downing tools? When Virgin Money introduced a new income-protection policy recently, it was astounded at the interest in an extra that offered cover for people unexpectedly losing their jobs.

''We were absolutely flabbergasted at the uptake of the unemployment cover,'' the acting managing director of Virgin Money, David Curneen, says.

People were ticking the box on the unemployment option in more than half the income-protection policies it was selling. Curneen believes the global financial crisis, along with general negativity about the Australian economy in the media, combined to make people feel more vulnerable.

Virgin's unemployment option pays as much as $3000 a month for up to three months if you're made redundant or, if self-employed, your business is declared insolvent.

However, you qualify for a payout only after the policy has been in force for six months, and you have to be out of work for longer than 28 days.

You also need to have been continuously employed for the six months before you lost your job, and to have been working more than 20 hours a week.

To receive the payment, you have to be ''entirely without gainful employment'' and actively seeking work - so if you take on even a small amount of casual or part-time work to make ends meet, you'll no longer qualify.

Crucially, the terms state that you have to have been made redundant or dismissed from employment ''through no fault or choice of [your] own, but solely because an employer has unexpectedly terminated … employment''. Unemployment caused by poor job performance, loss of qualification or licence, seasonal employment or a contract ending isn't covered.

Industry researcher Mark Kachor, of DEXX&R, says the concern with these types of clauses in any such policy is when they might be invoked and what sort of evidence you might need to produce to prove that work performance wasn't an issue.

''It has to be clear and unequivocal,'' Kachor says of redundancy. A business going broke with all jobs lost would be clear cut, but the loss of only some jobs in a company less so.

And in any case, Australian labour laws mean everyone is entitled to a minimum entitlement based on years of service, he says.

''I'm not saying [$9000] wouldn't help, but you're already going to get a lump sum … so is that the most important thing to be paying a premium for?''

Some people mistakenly assume that income protection means your income is protected whatever the reason you lose it - illness, injury or job loss.

However, Australian law says unemployment cover can be offered only by general insurers, not life insurers, even though it's life insurers that provide income protection.

That's why, for instance, in the Virgin Money product the income protection is provided by life insurer TAL Life, and the unemployment cover by general insurer ACE Insurance.

The head of product at MLC Insurance, Meredith Barnes, says people need to understand there's a key difference between life insurance and general insurance products.

Life insurance products are ''guaranteed renewable'', so once a policy is purchased, the only reason it can be cancelled is non-payment. That doesn't apply in general insurance, so the insurer could decide at any time to end the cover.

''If unemployment went to 30 per cent and a [general] insurer decided they didn't want to cover redundancy any more, they could scrap policies already in place,'' Barnes says.

Instead, life insurers provide other benefits to people worried about their job security, such as a waiver of insurance premiums or the funding of loan or credit repayments for a period.

''If customers take our premium waiver option, if they were disabled or unemployed we'd fund the insurance premium so they're still covered - the policy wouldn't lapse,'' Barnes says of MLC's premium waiver.

The waiver lasts up to a year, and about 15 per cent of customers take up this extra.

Insurance broker Paul Davies, of Jarickson Insurance Advisers, says not many insurers offer specific redundancy policies, and the cover tends to be expensive.

Look for helpful benefits that might be included in your income-protection policy. CommInsure, for instance, has a built-in benefit that covers up to three months' repayments on a loan if you're made redundant - provided the loan is with the Commonwealth Bank of Australia.

ANZ-owned OnePath also has a built-in benefit that pays the minimum repayments on ANZ loans, up to a cap of $5000 a month, for three months.