Redundancy Insurance - The Ins and Outs

Article published on 28th May 2015

Redundancy insurance is one of those policies that can often take a back burner to many peoples most essential priorities. However have you really considered how your family would make ends meet financially if you lost your job?

Redundancies are happening here there and everywhere at the moment and it is a really scary thought that you may suddenly be unable to afford food for your children or heating for your home.

Why not consider putting your mind at ease by applying for redundancy cover in case the worst happens.

What is Redundancy Insurance?

Redundancy Insurance (also known as Income Payment Protection Insurance, Mortgage Payment Protection Insurance or Unemployment Insurance) pays a regular monthly income if you are made involuntarily redundant through no fault of your own.

This type of short term Income Protection policy will typically cover around 65% of your income in the event that you are made redundant. This can be for the purposes of income replacement to maintain your standard of living, to equal your mortgage repayments and/or cover all of your expenses.

Your Redundancy Insurance will be paid by a set monthly premium that will be calculated using your age, occupation, amount of cover you require and the deferment period you choose before a successful claim is paid.

When will it protect me and pay out?

Many short term Income Protection policies can be applied for and setup in one day, meaning that you can start being covered immediately. However, you should be aware that all of these policies come with an initial exclusion period for the cover. This means that should you be notified of any potential redundancies within this period the policy will be void.

You will need to choose a policy deferment period as well: 1 day, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks. This will be the amount of time that you must wait until a successful claim starts paying to yourself. When you apply for Redundancy Insurance you should familiarise yourself clearly with the ins and outs of when you will be paid a claim and the criteria for eligibility.

For how long will my redundancy cover pay out?

Redundancy Insurance will typically pay for a maximum period of 12 months but there are policies that can pay up to 24 months. You can claim on the policy for a maximum of 12 months or until you return to employment.

Do I have to have a mortgage to be eligible?

You do not have to have a mortgage in order to be eligible for Redundancy Insurance. However some policies are dependent upon you being a homeowner so you need to ensure that you apply for the correct cover for your circumstances.

Does voluntary redundancy qualify?

If you voluntarily opt for redundancy then you will not be eligible to claim on the policy. Also if you become unemployed through misconduct on your part you will not be eligible to place a claim.

How much will my redundancy insurance cover cost?

The policy premium will depend upon your age, occupation, deferment period and the amount of cover that you choose to apply for. You may be eligible for a policy that protects around 65% of your monthly income but that does not mean that you need to apply for this full amount if you do not need it.

Redundancy Insurance can be available for as little as 3 per 100 of cover that you apply for.

For example, a 30 year old residential care worker on £20,000 a year looking for £1,000 a month of redundancy cover could pay as little as £26.31 (as of May 2015) a month.

Am I covered from day one?

Redundancy Insurance can backdate to the first day of redundancy if you choose this option. This will mean that at the end of the first 30 days of your redundancy you will begin receiving your policy benefit for the previous month.

As mentioned previously Redundancy Insurance providers place an initial exclusion period on the policy. You will need the policy to have been active for longer than the exclusion period (often 60 or 90 days) in order for you to be able to make a claim. Again, if you are made aware of any potential redundancies to your position during this exclusion period you will be ineligible for a claim.

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