What does Redundancy Insurance cover?

Put simply, Redundancy Insurance covers you if you lose your job unexpectedly and your regular salary stops without warning.

Protecting a percentage of your gross monthly income, this type of insurance offers reassurance and peace of mind, making sure you can still support yourself and your family while you look for alternative employment.

Like an emergency parachute or a rainy day savings fund, Redundancy Insurance gives you financial security when you need it most, allowing you to focus on finding a job that’s suited to your skills and qualifications, without feeling pressured into accepting the first opportunity that comes along.

Known as short-term income protection, Redundancy Insurance covers you for any unforeseen redundancy, unemployment or job loss, and pays out for up to 12 months in any one claim period

As long as you can prove that you lost your job through no fault of your own, rather than due to misconduct or any pre-planned company restructure, you should be able to make a successful claim. It also important to bear in mind, that you will not be able to buy this policy if you are aware of circumstances that may lead you to become redundant.

When you buy Redundancy Insurance, you’ll be asked to confirm that you aren’t aware of any risk to your job, or if you’re self-employed, any possibility that your company may cease to operate. As long as the information you provide is accurate and honest, any claim you make should be valid.

It’s also important to make sure that you haven’t accepted a voluntary redundancy package from your employer, as these policies only cover you in the event of involuntary job loss.

At the time of purchasing a policy, you’ll be asked to select a benefit amount. This is simply how much money you’d like to receive each month if you were made involuntarily redundant.

The amount you receive each month is linked to how much you earn, but can be anything up to 65% of your gross monthly income.

When choosing a monthly benefit, it’s important to remember that you don’t have to opt for the maximum that’s available to you, because the higher the benefit, the higher your premium will be (how much you pay each month for the policy).

The amount you choose should give you just enough to cover any essential outgoings each month – things like rent or mortgage repayments, food and household bills, or any payments towards a vehicle.

Because the monthly benefit is paid straight into your bank account each month, it doesn’t need to be tied to any kind of financial commitment. Some people use the money to cover their rent or mortgage repayments, or other necessities such as food, council tax and household bills, but you are free to spend it however you wish.

If you purchase Redundancy Insurance and need to make a claim, you will need to serve a one-off Initial Exclusion Period (IEP). This refers to the amount of time you must wait after purchasing a policy before you are eligible to claim, and lasts between 60 and 120 days, depending on the individual insurer.

Redundancy Insurance policies also come with an excess period, which is chosen by you at the time of purchase. Lasting anywhere from 0-120 days, this means the amount of time you’ll need to be unemployed for before receiving your first payment.

When you buy a policy, you’ll be asked how long you could support yourself for if you were made redundant, so it’s important to think carefully about your financial circumstances.

Most people are confident that they could survive without payment for the first month, and so opt for a 30 day excess period. If you think you could support yourself for longer, then choosing a longer excess period is recommended, as this will also lower the cost of your monthly premium. To start receiving payments straight away, you have the option of a ‘back to day 1’ excess, which comes at a higher premium, but will pay you in arrears from the very first day of your claim.

For more information about what Redundancy Insurance covers, or to purchase a policy, it’s always a good idea to speak to an advisor. Our Income Protection Specialists will answer any questions you have and do everything they can to find the best cover for you, at the best price on the market.