What is redundancy insurance?
Redundancy insurance, often called unemployment insurance, is a form of income protection that can pay out if you lose your job. Policyholders can be paid through a tax-free monthly income, which starts after a pre-agreed waiting period (sometimes called the deferred period). This type of insurance is often used to protect mortgage repayments, income or loan repayments, or your wages.
Frequently asked questions
What types of insurance are available if I lose my job?
The three main types of redundancy insurance are:
- Mortgage payment protection insurance (MPPI) This is often taken out along with your mortgage and can pay out for up to 12 months after your earnings have ended.
- Payment protection insurance (PPI) This offers income protection against your loan repayments, often by paying out a fixed amount for up to a year or 24 months.
- Short-term income protection insurance (STIP) This cover can replace a proportion of your salary and typically pays out over a fixed period of 12 months or longer.
It’s been well publicised that, because of the way in which payment protection policies were sold in the past, you may already have this type of cover without knowing it. You have until 29 August 2019 to make a complaint about the mis-sale of PPI, so if you’ve any doubts or would like to find out about MPPI and PPI, then the FCA’s website has more information.
To what extent do income protection policies cover redundancy?
Each policy will be different, but you can typically insure up to 50% of your income on a monthly basis. The more money you need, the higher your premium tends to be. As a starting point, you should consider what exactly it is you’re looking to protect. Is it just for a mortgage, loan or debt repayment; or would you need to cover your salary as well?
It can be really quick to get quotes based on cover for mortgage payments and income.
When should I avoid redundancy insurance?
If you have to leave your company because of misconduct, then an insurance provider won’t usually pay out. If you work for an employer, try to research what you would be due if you were made redundant.
If you’re a part-time or self-employed worker, or on a temporary contract, it’s also not likely you’ll be able to make a claim for a pay-out.
Check the terms and conditions carefully before signing up to any policy relating to redundancy, as you need to be clear on whether you qualify for a pay-out before you sign up.
What else should I think about?
Some of our providers do offer unemployment insurance as a standalone policy, and others are able to offer this as an add-on to an existing life insurance policy. Learn more about specific policies that may cover Unemployment only; Accident and Sickness; and Accident, Sickness and Unemployment.
Whichever option you feel is best for you, make sure you look into the details of each policy, not just the price, as they will be slightly different in what they do and don’t cover for redundancy, as well as any exclusions and how long the waiting period is before you are eligible for a pay-out.
Before committing to redundancy insurance, it’s a good idea to learn more about life insurance too – and it could take just three minutes for a list of life insurance quotes tailored to you.
Alternatively, start a quote for income protection now and look after what’s most important to you.