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.
It provides a tax-free monthly payment that could continue for up to 12 months, to cover a percentage of your gross monthly income while you look for a new job.
This allows you to continue paying your mortgage and making income or loan repayments. It’s a way of reducing the risks of getting into debt and avoiding the stress that this could bring.
We don’t compare standalone policies for redundancy insurance on Comparethemarket, but you can compare quotes for different types of income protection insurance, which include unemployment cover.
How does redundancy insurance work?
You’ll pay monthly premiums, and if you’re made redundant involuntarily during this time, you can make a claim.
To make a claim, you’ll need to register at a Jobcentre Plus and submit the relevant paperwork to your insurance provider. If your claim is successful, you’ll receive a tax-free payment each month until you find other employment or until the policy term ends.
Most policies offer cover for an unemployment period of up to 12 months. The pay-out is typically up to 70% of your gross annual income (before tax). However, providers might cap the total amount if you’re on a higher scale salary.
What types of insurance are available if I lose my job?
There are different types of redundancy insurance, all of which typically pay out for a fixed period of 12 months.
- Mortgage payment protection insurance (MPPI) is often taken out with a mortgage. It generally covers mortgage or loan repayments, not your income.
- Payment protection insurance (PPI) is designed to cover specific debts such as a loan or credit card payments. It’s been well-documented that PPI was mis-sold in the past, but it could still be worthwhile if you’re worried about being unable to work.
- Accident, sickness and unemployment (ASU) insurance offers comprehensive protection if you’re unable to work because of illness or injury, or you’re made redundant.
What does redundancy insurance cover?
Redundancy insurance is designed to cover a portion of your salary if you unexpectedly lose your job through no fault of your own. It covers you for compulsory redundancy as well as the company going into administration.
What isn’t covered by redundancy insurance?
Redundancy insurance won’t cover you if you take voluntary redundancy or are given the sack.
You also won’t be covered if you deliberately take out a policy knowing you’re about to be made redundant.
If you have redundancy insurance as part of an ASU policy, you might not be covered for all medical conditions. Your insurance provider will also want to know about your medical history.
Make sure you read the terms of your policy carefully to ensure you’re getting the cover you need.
When should I consider buying redundancy insurance?
No job is for life or completely secure, so income protection insurance needs to be considered on a ‘what if’ basis. But there are some situations that might make redundancy insurance more of a priority:
- Your company is laying people off but redundancy looks unlikely in the near future. Many policies have a waiting period of three to six months before you’re allowed to make a claim.
- You don’t have a lot of savings but you can cover yourself during the deferral period before the first insurance payment starts. This is likely to be a minimum of a month.
- You have a mortgage, loan or other debts to pay off.
- You have a family to support.
- If you think you’d struggle to find work quickly if you lost your current job.
You probably won’t be eligible to buy redundancy insurance if:
- You already know your job is at risk.
- You’re taking voluntary redundancy or you’ve been fired, dismissed for misconduct, or you’ve chosen to leave your job.
- Your employer offers you an alternative role and you turn it down without a good reason.
- You’re self-employed, work part-time or you’re on a temporary contract.
- You’re a company director.
- You have other skills that mean if you lose your current job, you could move to a different line of work.
What is the difference between a deferred period and an exclusion period?
The deferred period is the time from when you’re made redundant to when payments start. It’s usually a minimum of 30 days.
You can choose to defer your payments for longer. This could help reduce the cost of your premium. It’s worth considering if you have savings to fall back on and are able to cover the gap.
The exclusion period is an agreed initial timeframe in which you won’t be able to claim. If, at the start of your policy, you have a six-month exclusion period, you won’t be eligible for any pay-outs during that time. The point of an exclusion period is to stop people from taking out a new policy when they know they’re going to be made redundant.
How much is redundancy insurance?
The cost of redundancy insurance varies between providers and depends on a number of things, including:
- Your age – ASU policies are more expensive as you get older. This is because there’s a higher risk of you becoming ill and taking time off work.
- Cover level – the higher the percentage of your salary you want to insure, the more expensive your premiums will be.
- Benefit period – you choose how long you want payments to last – this could be for 12, 18 or 24 months. The longer the cover period, the more expensive your cover will be.
- Deferred period – your premiums will be cheaper if you can agree to wait longer before receiving payments.
What do I need to get a quote?
We can help you compare income protection insurance quickly and easily, so you can find the right level of cover to suit you. You don’t need any documents to get a quote. We’ll just ask you to answer a few questions covering:
- Your name, age and address
- What you do for a living
- Whether you’re employed or self-employed
- How much you earn a year
- Whether you’re a homeowner
- Whether you smoke or use nicotine-based products
- Your chosen deferral period
- The amount of cover you want, based on your monthly income
- When you’d like the cover to start.
Frequently asked questions
What are the pros and cons of taking voluntary redundancy?
Voluntary redundancy is when you agree to terminate your employment in return for a financial incentive. However, you should weigh up the pros and cons before deciding if ‘volunteering’ is right for you.
- You may receive more money than you’d get with ‘involuntary’ redundancy
- It’s up to you whether to accept voluntary redundancy or not
- It can give you more time to prepare financially before leaving your job.
- If you don’t accept, you could face involuntary redundancy further down the line with a less favourable redundancy package
- Redundancy insurance doesn’t cover voluntary redundancy
- If you have a mortgage protection policy, it may not cover voluntary redundancy.
Is there any government help if I’m made redundant?
You might have certain rights as an employee if you lose your job, depending on the kind of work you do, where you work and how long you’ve worked there.
You could be entitled to:
- A notice period
- Redundancy pay
- Time off to find a new job
- The option to move to a different role
- A consultation with your employer.
For more about your redundancy rights, visit GOV.UK.
If you think you’re being unfairly dismissed, get in touch with the Citizen’s Advice Bureau.
Do you pay national insurance on redundancy pay?
Any payments you receive through a redundancy protection policy are tax-free. Statutory redundancy pay under £30,000 is also non-taxable.
However, if you get a termination payment when you leave a job, some of the money you receive might be considered earnings. This means you’ll have to pay tax and National Insurance on them.
- Unpaid wages
- Holiday pay
- Payments made during gardening leave.
Find out more about your redundancy rights at GOV.UK.
How much statutory redundancy pay will I get?
You’ll only qualify for statutory redundancy pay if you’ve worked for your employer for at least two years.
How much you get depends on your age, your weekly pay, and how many years you’ve been in your job (capped at 20 years).
If you live in Ireland, you'll need to use the GOV.IE redundancy calculator instead.
How long does it take to get redundancy pay from the National Insurance fund?
If you’re entitled to statutory redundancy pay, you should receive payment from your employer on the date you leave work, or on an agreed date soon after.
Your employer must tell you in writing how your redundancy pay was calculated and when you’ll get your payment.
They should pay you in the same way they paid your wages – for example, into your bank account.
Does income protection pay out if I die?
No. The aim of income protection is to support you until you return to work or reach retirement age, whichever comes first. To provide support for your loved ones after you’ve gone, you need life insurance.