Can I take out redundancy insurance?

8 min Read Published: 05 Apr 2022

In this article we explain what redundancy insurance is, how it works, who should buy it, as well as the best place to purchase a redundancy insurance policy.

Can I take out redundancy insurance in case I lose my job?

There are redundancy insurance policies available that could help you financially if you were to be made redundant, but you need to make sure you choose the best option for your personal circumstances. Below we explain the different types of insurance policies available when it comes to insuring your income.

What policies are available for redundancy insurance?

Income protection insurance

This policy will pay a regular income if you are off work due to an accident, sickness or unemployment. Although the sickness option is the main part of the benefit, some policies will allow you to choose to be covered against involuntary unemployment or redundancy within the same policy providing you with peace of mind that your income will continue whether you're unfit to work or you're made redundant.

The amount payable each month is limited to 65% of current income and will continue to be paid for an agreed period, normally 12 to 24 months in the case of redundancy. The payments will commence after an agreed period which is typically 1 to 12 months after earnings stop.

Payment protection insurance

This policy is designed to pay out a monthly amount to cover the payments on a loan or credit card if you are off work due to accident, illness, become involuntarily unemployed or you're made redundant. As this policy will only cover the payments on a loan or credit card it will not cover all your outgoings in the event of redundancy although you may be able to insure slightly more than the amount of the payment with some insurances. The payments on this type of policy will typically commence after 1 to 3 months of the date when you stop working and continue for 12 to 24 months per claim. The policy is an annually renewable policy.

Mortgage payment protection insurance

This policy is designed to pay out a monthly amount to cover your mortgage payments if you are off work due to accident, illness, involuntary unemployment or you're made redundant. The payments will, typically commence after 1 to 3 months and continue for 12 months. This is a type of payment protection insurance that is specifically designed to protect your mortgage payment so that you can safeguard your home and the roof over your head.

I am concerned that redundancy is a possibility, will redundancy insurance cover me?

If redundancies at your company have already been announced, or even if there have just been rumours of job losses, redundancy insurance will not pay out. Insurance companies will always check with your employer before they will agree any payout. Also, if your employer offers you a voluntary redundancy package and you decide to take this, you are unlikely to be able to claim as the redundancy insurance almost always is covered for involuntary redundancy only. Do bear in mind that there may be an initial exclusion period to your policy.

Can I get redundancy insurance if I am self-employed?

Redundancy insurance is not generally available for anybody who is self employed or a contract worker but some companies will cover redundancy on a 'cease to trade' basis. You need to check the terms and conditions carefully before starting a policy.

Who should buy redundancy insurance?

  • Anyone in a job where there is a medium risk of redundancy but there have been no announcements or rumours of redundancy should consider redundancy insurance
  • Anyone who feels that, if they were made redundant, they would have difficulty finding a job within 3 months should consider redundancy insurance

What are my employer's legal obligations if I am made redundant?

  • After two years working for an employer, an employee will qualify for a minimum statutory redundancy payment
  • An employee with less than two years with an employer has no statutory right to a redundancy payment

If I have worked for my employer for over two years how much redundancy payment will I receive?

Your employer can choose to pay an enhanced redundancy

  • half a weeks pay for every year you worked under the age of 22
  • one week pay for every year you worked over the age of 22 but under 41
  • one and a half weeks pay for every year worked over the age of 41
  • to calculate your redundancy pay click here
  • you will not be entitled to a redundancy payment if your employer offers you suitable alternative employment
  • if the company you work for goes into administration you will still be entitled to redundancy benefits, these will be covered by the National Insurance Fund if the company has no funds remaining
  • redundancy pay (including any severance pay) under £30,000 is tax free

How to buy the best redundancy insurance policy for you

There are a number of specialist redundancy insurance providers in the UK but it can be difficult to compare quotes and work out which unemployment cover is most suitable for you. It is often best to speak to an independent redundancy specialist who can compare the best policies on your behalf and provide advice and guidance as to which policy is right for you. We recommend that you speak to a redundancy insurance specialist at Assured Futures* by calling 01242 894816. The advice is free and there is no obligation to take things further.

Further reading

What is the difference between income protection and PPI?

What is a deferred period on an income protection policy?

How much does income protection insurance cost?

 

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses - Assured Futures