It only starts once the holder has found new employment and pays the difference between the old one and the new salary
Salisbury Underwriting Services is expected to launch salary gap insurance through the broker – Tobell, to bridge the gap in wages of UK workers who are made redundant and re-employed in jobs that pay a lower annual income – reported Financial Times.
In contrast to redundancy insurance, salary gap insurance only starts once the holder has found new employment and pays the difference between the old one and the new salary. Buyers can either pay a small portion of the salary gap or the full difference.
Martin Jackson, director at Tobell, said: “We realised that there wasn’t anything like this in the market and we thought it was a great extension to accident, sickness and unemployment cover. There will be a lot of people who, long after the recession has passed, will remember the worries around job security.”
However, some analysts are of the opinion that it is very difficult to price the salary gap insurance across a broad range of professions. Ben Cohen, insurance analyst at Collins Stewart, said: “One difficulty for the insurer with something like this would be the moral hazard of the buyer always knowing more about the job and the likelihood of it lasting. There would be extra weighting for that which would push the premium right up. You’d have to be a little sceptical about how often a product like this would actually pay out,” reported the newspaper.