If you do not have enough savings to cover regular bills and outgoings in the event of losing your job, then redundancy insurance is worth a look. There are no cast-iron guarantees but some of the policies may be able to help you and your family. They can also provide protection against loans and support mortgage repayments. Find out below how redundancy insurance works.
What is redundancy insurance?
Also referred to as unemployment insurance, redundancy insurance works as a form of income protection that can provide a pay-out should you lose your job. After the deferred period has finished (a pre-agreed waiting period) policy holders areable to receive a tax-free monthly income. Workers use this type of insurance to ensure their mortgage, loan or income repayments are protected, along with their wages.
What type of redundancy insurance policies are available?
The different types of redundancy insurance are:
- Mortgage payment protection insurance (MPPI)
Many policy holders take this out at the same time as their mortgage. In some cases it can provide payments for as long as 12 months after losing your earnings.
- Short-term income protection insurance (STIP)
This policy is able to replace a portion of your salary. Typically it will be able to offer pay outs for at least 12 months and sometimes even longer.
- Payment protection insurance (PPI)
If you have taken out any loans while working, this provides protection against the repayments. You should expect to receive pay outs for up to a 12 or 24 months.
Before committing to any protection policies you should check that you do not already have this type of cover. You are still able to make a complaint about the mis-sale of PPI until 29 August 2019. If you are unsure about MPPI and PPI, visit the FCA website to find out more and you can also find out how to check if you have PPI.
How much redundancy cover does it provide?
There are differences to every policy, but in many cases you are able to insure up to 50% of your monthly income. As with all insurance, the more you want to insure, the higher your premium will be. The first thing to do is think about what it is you want to protect. Will it be for a loan, mortgage or debt repayment, or would you prefer a policy that can also cover your salary?
When is redundancy insurance not suitable?
If you left your last company due to misconduct, you are far less likely to receive a pay-out from the insurer. Anyone who is on a temporary contract, working part-time or is self-employed will probably not be able to make a claim.
For anyone working at a company where redundancies have started to take place, then taking out redundancy insurance will not provide any cover. This also applies to voluntary redundancy, as insurers won’t pay out in these circumstances.
It always makes sense to find out what redundancy is available from your current employer. Before signing up to a redundancy policy always check the full terms and conditions so you are clear on what, if anything, you could receive.