Redundancy Insurance: Would You Ever Need It?

Also known as “income security insurance” or “unemployment cover”, redundancy insurance can add another layer to your financial coverage. But do you really need it?

Whether it is because of overseas outsourcing, an industry slow-down, or even the advent of robotic technologies, involuntary redundancies can be a tough thing to face up to. Unfortunately, we’re often unprepared for them, and are left facing the reality of not having a reliable income for an uncertain period of time. In the meantime, the bills keep rolling in while mortgage repayments or rent build up – forcing some to take drastic measures, such as selling the house.

Preparing for an unexpected job loss can be as simple as having an emergency savings fund, but some people might protect themselves by taking out what’s known as redundancy insurance.

What is redundancy insurance?

Not to be confused with income protection insurance, which generally covers partial loss of income from being unable to work due to illness or injury, redundancy insurance offers limited financial protection in the case of involuntary redundancy.

The benefit of buying a standalone redundancy insurance policy is higher benefit limits and benefit periods. In contrast, redundancy cover included in an income protection policy makes the premiums for that policy more expensive without adding a lot of benefit in terms of coverage.

what is redundancy insurance

Features of redundancy insurance

The coverage provided by redundancy insurance generally includes the following:

  • Generally, redundancy protection can pay monthly benefits of up to 85% of your usual income after you lose your job for a set period of time.
  • As you would expect, there’s a no-claim (qualifying) period. This can range from 3 to 6 months from the start of the policy.
  • There’s also a waiting period of usually between 30-90 days. For example, with a 30-day waiting period, the insurer won’t pay the redundancy benefit until you have been off work for a minimum of 30 days. Some insurers offer a choice of how long your waiting period is, e.g. 30, 60, or 90 days.
  • Most insurers will waive premiums while you are unemployed and receiving the monthly benefit.
  • Some policies offer a training benefit which allows you to claim the cost of the study and retraining you undertook in order to get a new job.

features of redundancy insurance

Redundancy insurance eligibility requirements

To be eligible for redundancy protection and to qualify for a claim, there are a number of requirements that usually need to be satisfied. Here are some of the common requirements and restrictions:

  • Required to be a full-time employee (not self-employed or a contractor).
  • Need to have been employed for a set period of time with the same company.
  • Not all occupations, industries, or employers are eligible for protection.
  • To receive the benefit, you’ll often have to prove that the redundancy was involuntary and did not have anything to do with your behaviour, conduct, or performance as an employee. So the cover does not apply if you were fired from your job rather than being made redundant.

Do I need redundancy insurance?

A redundancy policy might provide some financial reassurance while you are looking for a new position. Nevertheless, you need to weigh up the cost of the premiums against the chances of you actually being made redundant (and being eligible for the benefits). Also consider if it’s better to save this money instead – perhaps in a rainy day fund.

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