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Redundancy insurance is a tax-free benefit that helps pay the bills should you lose your job. Also known as unemployment protection insurance, it takes away those financial worries and enables you to concentrate on finding a new position.
What is redundancy insurance?
Redundancy cover is a specialist type of income protection insurance to safeguard your monthly expenses if you are made redundant involuntarily. It provides up to 70% of your gross monthly income for up to 12 months and can be used to meet a range of financial outgoings, such as your mortgage, loan and credit card repayments and household bills. In contrast, other types of insurance - such as mortgage protection insurance, for example - can only be used for one specific expense.
Office for National Statistics figures show that, between February and April 2017, 89,000 people were made redundant in the UK. Yet according to the Chartered Insurance Institute (CII), just one in 10 people have income protection cover and almost half of UK households have less than £1,500 in savings - which, for many families, would barely cover one month’s outgoings in an emergency.
As a specialist redundancy insurance broker, we partner with leading policy providers to bring our customers quotes within their budget and invaluable peace of mind should the unexpected happen.
How does redundancy cover work?
As with other types of income protection insurance, a redundancy insurance policy is paid for via monthly premiums and pays out if you become redundant involuntarily. To find the right policy, you can compare redundancy insurance quotes and benefits before deciding which best suits your lifestyle and circumstances.
Most policies provide financial cover for up to 12 months following involuntary unemployment. If you are made redundant, you will need to provide your insurer with the relevant documents from your employer to confirm your claim. There is usually a 30-day ‘wait’ period until you receive the first tax-free monthly payment, although if you have opted for a ‘back to day one’ policy, payments will be backdated to the day you were made redundant.
As with many types of insurance, the longer the benefits are paid out for, the more expensive the premiums. To reduce costs, you might consider an unemployment insurance policy that doesn’t pay out until 60 days after your redundancy starts if, for example you have enough savings to cover two months’ outgoings in the meantime.
Do I need redundancy insurance?
With today’s workforce less likely to have a ‘job for life’ and the equivalent of roughly 1,000 people being made redundant every day in the UK, unfortunately there is a real possibility we will face redundancy at some point in our careers. You might be eligible to claim Jobseeker’s Allowance while you look for a new job, but, as of April 2017, the maximum you might get is £73.10 per week if you’re over 25 and £57.90 if aged between 18 and 24.
If you rely on your income to pay all or some of your household outgoings, it’s wise to consider redundancy insurance. The kinds of expenses it can take care of include:
- mortgage repayments or rent
- council tax
- utilities bills
- loan and credit card repayments
- food shopping
- family activities, hobbies and school expenses
Am I eligible for redundancy insurance?
It is harder to buy redundancy insurance if you fall into certain categories, such as if you’ve been in your role less than six months, you’re aged over 65, you’re self-employed or you work part time. In addition, it won’t pay out if you volunteer to take redundancy, resign from your job or are dismissed.
The main thing to remember is that unemployment insurance is specifically designed to protect against unexpected redundancy - and that insurers will check the circumstances rigorously. So if you suspect that redundancy is on the cards and take out a policy as a precaution, there’s a real likelihood your claim will be rejected and no payout made.
As with any insurance policy, it’s essential to read the documents carefully, check for exclusion clauses and note any initial timeframe within which you can’t make a claim.