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, which may 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.
A redundancy insurance policy might include a deferral (waiting) period. This is the time from when you finish your job to when payments start – usually a minimum of 30 days. Choosing to defer payments for longer could reduce the cost of your premiums, but you must be able to cover that period of financial downtime. This may be possible if you have savings to fall back on.
We don’t compare standalone policies for redundancy insurance on Compare the Market, but you can compare quotes for different types of income protection insurance, which include unemployment cover.
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). This is often taken out with a mortgage and typically starts three months after your earnings stop. It generally covers mortgage or loan repayments, not your income.
- Payment protection insurance (PPI). You might already have it with a personal loan or credit card, and it’s designed to cover specific individual debts. 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. If you lose your job and fall ill, this covers a portion of your income. But if you’re considering this policy, it’s worth checking whether your employer offers any sick pay and redundancy packages so you’re not wasting your money. Accident and sickness cover can also be bought separately.
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.
Policies also include an initial exclusion period of around three to six months. If you’re made redundant or find out your job is at risk during this period, you won’t be able to claim.
Not all medical conditions will be covered by redundancy cover and insurance providers will want to know about your medical history. Certain exclusions may apply so make sure you read the terms of your policy carefully to ensure you’re getting the cover you need.
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
Is there any government help if I’m made redundant?
If you lose your job, you might have certain rights as an employee, 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.
To what extent do income protection policies cover redundancy?
Each policy will be different. At Compare the Market, our panel of insurance providers offer a maximum of 50% of your gross monthly income when you compare income protection insurance.
The more money you need, the higher your premium tends to be. As a starting point, think carefully about what you’re looking to protect. Is it just 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 will a redundancy insurance policy pay out?
That’s largely up to you, although the policies of different insurance providers will vary. Many redundancy insurance payouts start after a ‘deferred period’, which is agreed at the time you take the policy out. However, it’s possible to get a policy that will pay out immediately, although it’s likely you’ll pay higher monthly premiums.
This means you need to weigh up the pros and cons. If you have savings put away that will get you through a deferred period, then it might be better to save on your monthly premiums, but if you’ll need the money as soon as possible to cover important bills, then it could be worth paying more each month for that security.
How much of my income is covered?
This varies depending on the insurance provider and how much of your income you’d like to insure. While it’s possible to get cover for up to 100% of your income, this is rare and can come with other limits. For example, there may be a cap in place, which means it only makes sense for people who earn less than the cap.
When you get a quote with us, you can insure 50% of your income, Again, there may be limits on how much you can cover overall, so make sure you read your policy wording carefully to avoid any nasty surprises when you need the support most.
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, when you leave a job, if you get a termination payment, 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.
When should I avoid redundancy insurance?
If you leave your company due to misconduct or you’re not kept on at the end of a probation period, then an insurance provider won’t usually pay out. You also won’t be covered if you take voluntary redundancy, resign from your job or refuse an alternative job offer from your employer without a good reason.
If you work less than 16 hours per week, are self-employed or on a temporary contract, it’s also unlikely that you’ll be able to make a claim for a payout.
If you work for an employer, it’s a good idea to research what you would be due if you were made redundant. If you decide you need separate redundancy cover, check the terms and conditions carefully before signing up to any policy to make sure you qualify for a payout.
How much statutory redundancy pay will I get?
If you’ve worked for your employer for two years or more, you might qualify for statutory redundancy pay.
How much you get depends on your age, weekly pay and length of service (capped at 20 years).
- Aged under 22: you’ll receive half a week’s pay for each full year you were under 22.
- Aged 22-40: you’ll receive a week’s pay for each full year you were 22-40.
- Aged over 41: you’ll receive a week-and-a-half’s pay for each full year you were 41 or older.
The upper limit if you were made redundant on or after 6 April 2022 is £571 a week. The maximum statutory redundancy pay you can get in total is £17,130. If you were made redundant before 6 April 2022, the amounts will be lower.
If you live in Ireland, figures will be different. Use the GOV.IE redundancy calculator instead.
How can I cut the cost of redundancy insurance?
If you have savings, you might be able to save money on redundancy insurance by increasing the deferred period and delaying the first payout. You could also save if you’re willing to keep paying for your policy while you’re receiving a payout.
Above all, make sure you have the right level of cover in place. The income protection quotes you can compare on Compare the Market typically cover up to 50% of your gross annual salary. But, if you have savings to tide you over until you get another job, you could choose to cover a smaller amount. Your premiums will be cheaper and you’ll have a wider choice of providers.
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.
What else should I think about?
Redundancy cover can be a standalone product, but typically it’s part of a combined Accident, Sickness & Unemployment policy.
Every insurance policy is slightly different as to what it does or doesn’t cover. Exclusions may vary and the length of the waiting period before you’re eligible for a payout can also differ. Always read the small print of any policy you’re considering.
Compare quotes for income protection now and look after what’s most important to you.
Why use Compare the Market?
What our expert says…
“Being made redundant brings with it many worries, but the right protection can give you the peace of mind that you’ll still be able to pay your bills if you lose your job.”