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What is redundancy insurance?


Redundancy insurance (also known as unemployment insurance) is a short-term income protection policy that will cover you for up to 12 months if you are unable to work because of involuntary redundancy. It can be used to protect such things as your loan and credit card repayments, as well as the payments you need to make on your mortgage.

There are situations where you may be ineligible for coverage. So, if you work part-time, work to contracts on a self-employed basis, or if you have been in your current role for less than 6 months, then you might not be eligible for redundancy cover. However, there are specialist insurers who will cover you if you fall under these categories, so it is worth shopping around, especially if your financial security will be put at risk.

You won’t be covered if you take voluntary redundancy or if you are dismissed by your employer.

Do you need redundancy insurance?

Do you need redundancy insurance Explained

If you are particularly worried about being made involuntarily redundant, then yes, you should probably start searching for an affordable policy. You should also consider it if you would be unable to meet your usual outgoings after being made redundant, perhaps because of a lack of savings or another income source to meet your financial needs.

On the other hand, if you do have a secondary income (perhaps from your partner), or savings in place, then you might not consider redundancy insurance necessary. You might also decide against taking out this type of insurance if you are close to retirement, and you have a pension in place to help you live comfortably. And you might decide against redundancy insurance if the redundancy pay from your employer is set to cover your financial needs.

How does redundancy insurance work?

If your claim is approved, you will start receiving payouts, usually after a 30-day wait period. If you have opted for a ‘back today one’ policy, then your payments will be backdated to the start of your redundancy.

How much you get paid will depend on your annual income (usually 70% of your annual income before tax), and there may be capped limits set by the insurer. You will keep receiving payments until you return to work or until the term of your policy has passed.

You can choose between an unemployment policy and an accident, sickness, and unemployment policy (ASU). An ASU policy will provide redundancy insurance cover, as well as protection if you’re unable to work due to an injury or if you become sick. This might be more cost-effective than taking out a separate policy to cover periods of sickness and injury. Some insurers also offer the option of protecting the value of any employment benefits you might be in receipts of, such as a company car or private health insurance. These benefits are sometimes known as ‘benefits in kind’, or P11D benefits. Of course, any extra coverage you require will be reflected in your monthly premiums.

How to reduce the cost of redundancy insurance?

If you have some savings in place, you can defer the start date of your coverage, as this will bring down the cost of your insurance premium. You can also cut the cost of redundancy insurance by only taking out the right amount of coverage that is needed for your personal situation. And you can save money by shopping around insurers, as if you hold out until you get the best deal for you, then you will have less to pay out in the weeks and months ahead.

If you need more information on redundancy cover, please get in touch with a member of our team using the contact details on our website.