There’s a component of life insurance cover that will pay out in the event you’re made redundant. Currently, policies aren’t as widespread due to COVID-19, but you can still find them. Here’s what they’re all about.
In This Guide:
- What is redundancy insurance?
- What does redundancy insurance cover?
- What types of redundancy insurance is there?
- Do I qualify for redundancy insurance?
- How long does redundancy insurance last?
- What type of redundancy cover should I get?
- How to Get Cheap Redundancy Cover
- Compare Life Insurance Deals for Redundancy Cover
What is redundancy insurance?
Redundancy cover is a type of income protection insurance whereby if you’re made redundant from your job, you’ll continue to receive monthly tax-free payments as a partial replacement for your wage. It can give peace of mind by allowing you to keep up with mortgage payments, bills and any other debts or loans you have until you find another job.
What does redundancy insurance cover?
In the UK, you’ll generally be able to insure up to 70% of your salary. However, if you’re earning big bucks then there will be a cap.
When you compare life insurance deals, check the restrictions on redundancy pay-outs as each insurer will have their own limits. Generally, these fall into two categories: the maximum benefit, which is the highest income an insurer will cover as a rule, and the maximum cover, which refers to the highest percentage of an income that they’ll cover.
As an example, let’s say you earn £20,000 and want to cover 75% your income, which is £15,000. An insurer, on the other hand, may have a maximum benefit of £10,000, meaning you only get 50% of your salary.
Most redundancy policies will also pay out if you fall sick or get injured and can’t return to work as a result. Plus, you can elect to further protect any additional benefits you get as part of your job package, such as private health care.
What types of redundancy insurance is there?
There are a few different redundancy insurance options available to you:
- Payment Protection Insurance: or simply PPI by its more famous name. PPI insures you in the event you can’t work due to sickness, an accident or are made unemployed.
- Mortgage Payment Protection Insurance: is PPI that specifically covers your mortgage. It’ll pay out for up to a year after your earnings have stopped, and usually you’ll take this out alongside mortgage.
- Unemployment Protection: can replace part of your salary and can pay-out for a year or longer. You can often find these as standalone policies rather than as part of a life insurance deal.
Do I qualify for redundancy insurance?
Not everyone will qualify for redundancy cover. If you’re on a temporary contract, work part-time or are self-employed then it’s unlikely you can claim for a pay-out; the same goes for if you’re not kept on for a permanent position after a probation period.
Furthermore, if you’re asked to leave by your employer for reasons such as misconduct, you won’t qualify for a payment. Likewise, if you take voluntary redundancy. It’s also possible that you may meet limitations for redundancy insurance – or even not qualify altogether – due to your age.
Finally, if you know your job is at risk and there’s a likelihood of you being made redundant, you won’t qualify. For this reason, policies tend to have an exclusion period of about 3-4 months from activation before you can make a claim.
How long does redundancy insurance last?
When you take out a redundancy cover, you and your insurer will agree on a date your policy will start once you’ve lost your job. Pay-outs can start immediately, or you could choose to wait.
Should you elect to defer, you’ll generally get cheaper premiums. While we all want to save money on insurance, be sure you can manage financially if you were to defer, as within this period you’ll have no income at all. That means calculating your savings and carefully budgeting for your mortgage, debts and any other living expenses you have.
Typically, if you’ve involuntarily lost your job, redundancy cover will pay part of your income for up to 12 months afterwards or until you find a new job – whichever is sooner.
What type of redundancy cover should I get?
When it comes to redundancy cover, there’s not a one-size-fits-all solution. It’s a personal calculation on what you can afford to pay as a premium and the minimum amount you’d need following a successful claim. It depends on your savings, whether or not your mortgage is already paid off and the extent of any other loans you have.
How to Get Cheap Redundancy Cover
When you compare life insurance deals for redundancy cover, there are a few things to consider which can help reduce your quote:
- Can you get by on less?
- Could you increase your deferred period?
- Have you shopped around for a better deal?
Compare Life Insurance Deals for Redundancy Cover
Once you run your life insurance comparison, you’ll be able to include whether you want redundancy cover as part of your package. We should stress again that due to the coronavirus pandemic, not all providers are offering redundancy insurance at the moment due to the unpredictability of the employment market. However, some still are. So, if you’re concerned your job could be at risk in the distant future or simply want peace of mind, compare life insurance deals with us to see what providers are still offering redundancy cover.