Reader question: 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.
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. 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 are 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 unemployed or 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. The payments on this type of policy will typically commence after 3 months and continue for 12 to 24 months or in some case until the end of the loan period.
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, unemployed or made redundant. The payments will, typically commence after 3 months and continue for 12 months. It is vital that your mortgage payments are covered in the event of redundancy and this policy could ensure you keep a 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 payout. Insurance companies will always check with your employer before they will agree any payout.
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
- As long as they have shopped around for the best policy and understand all the terms and conditions
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 minimal 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?
- half a weeks pay for every year you worked under the age of 22
- one weeks 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 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
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.
Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.