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Last updated: 10 February 2022
No one ever wants to lose their job but unfortunately, life happens. During a stressful time, such as this, the last thing you want is the added financial strain while you try to get yourself back on your feet and in a new working environment. And while some companies do offer redundancy packages to their employees, the total may not be enough to cover all of the usual monthly expenses and bills. This is where redundancy insurance can offer you peace of mind while you gather your bearings and reorganise your life.
What Is redundancy insurance?
Redundancy insurance, sometimes referred to as unemployment insurance, is a form of income protection that will pay out if your company deems you redundant (or if the company becomes insolvent). Policyholders will be paid a tax-free monthly income which will start either from the date of unemployment or after a pre-agreed waiting period (often called the deferred period).
Policyholders generally use this cover to ensure that their mortgage repayments and loan repayments can be made despite the fact that they have no monthly income. It can also be used to cover the general costs of bills and living expenses.
How does it work?
Redundancy insurance works similar to most income protection insurance
policies. You will pay monthly premiums and you will receive pays-outs if you become involuntarily redundant. The terms may differ between providers but most agree to provide financial cover for up to 12 months following unemployment.
When you become redundant, then you will need to follow certain steps to qualify for your claim. The first step will be to submit the relevant documents from your employer to confirm your situation. Your insurer will advise you on what will happen next.
Typically, you will first have a 30-day ‘wait’ period before you receive your first tax-free monthly payment. Some policies, however, do provide an option to choose a ‘back to day one’ policy, which means that payments will be backdated to the day you were made redundant (bear in mind that this may increase the cost of your premium).
What does a redundancy insurance policy cover?
A redundancy policy will pay out to help you cover your day-to-day expenses as well as your mortgage payments and other loans.
Most policies that pay out for redundancy will pay out if:
- Your company deems you redundant
- Your company is made insolvent
- You are ill and cannot return to work
- You get injured and cannot return to work
Most insurers will provide you with options regarding the amount of cover you get. For example, there’s:
Maximum cover is the highest percentage of your income that will be insured by your provider
Maximum benefit is the highest amount of income that will be insured by your provider
Should I consider purchasing a redundancy insurance policy?
A redundancy policy may not be necessary for everyone. For example, your employment contract may already include a redundancy package upon dismissal.
You will also not qualify for this type of insurance if:
- Redundancy has already been announced at your company
- If you take voluntary redundancy#
You should consider agreeing to a redundancy policy if:
- You think the likelihood of redundancy in your current work position is high
- You think you may be made redundant more than 3-6 months away
- You think you will battle to find a new job within three months of redundancy
- You are happy with the policy terms i.e. that payments will be made up to 12 months only after a 1-3 month waiting period
- You understand all of the exclusions
How much does redundancy insurance cost?
The price of a redundancy insurance policy will depend on a few factors and will vary from person to person. An insurance provider may take your age, your previous work history, your health, and any other risk factors into account. The biggest deciding factor, however, is how much cover you need i.e. how much would you like to be paid out in the event that you suddenly become redundant.
You may also want to keep in mind that the longer the benefits are paid out for, the more expensive the premiums will be. To lower your premiums, you may want to consider a policy that only pays out 60 days after your redundancy started (perhaps you have savings that could tide you over for the first two months)?
To get the best price, we encourage you to shop around before agreeing to a policy. Remember, you want a price that meets your budget but also includes all of the benefits that will suit your needs and lifestyle.
Where can I get redundancy insurance quotes from?
Comparing redundancy insurance quotes is easy. All you need to do is use our online income protection insurance comparison
tool. Simply fill in our form with your details and we will do the “shopping” for you. We’ll request quotes from the best insurance providers in the UK and then we will provide you with a comparison table so that you can compare prices with the benefits offered.