Can you get redundancy insurance in case you lose your job?
There are redundancy insurance policies available that could help you financially if you were to lose your job through redundancy, but you need to make sure you choose the best option for your personal circumstances. Like any insurance, you must have redundancy insurance in place before you are aware of the possibility that you may be made redundant.
Below we explain the different types of insurance policies available when it comes to insuring your income.
What insurance covers redundancy?
Cover against redundancy that will pay you if you are made involuntarily redundant comes in a few different formats and can often be added to accident and sickness insurance. Your personal circumstances including what you do for a living; how long you've been employed and whether you're looking to protect your mortgage payments will dictate which type of insurance is best for you.
Below, we look at the various types of insurance policies that can include redundancy and explain who they may suit best.
Does income protection insurance cover redundancy?
Income protection insurance can cover redundancy but may not automatically include this option as it is usually an additional benefit that is added to the main insurance. Income protection insurance may be referred to as sick pay insurance or loss of earnings insurance.
Although the sickness option is the main part of income protection insurance, 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 up to 65% of current gross income and will continue to be paid for an agreed period, usually 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.
Verdict: Income protection insurance that includes redundancy insurance provides security against loss of income due to a number of unpredictable events that include injury, illness and involuntary redundancy. It is one of the most comprehensive types of income insurance and can be tailored to suit what you need based on your employer's sick pay and other means that you have to cover a gap in your earnings.
Does Payment protection insurance cover redundancy?
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 an accident, or illness, or become involuntarily unemployed making you 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 annually renewable which means that the cover and the price of the cover may change at each renewal.
Verdict: Payment protection insurance including redundancy cover can be useful for those who only wish to cover a particular credit payment in case they become ill, injured or involuntarily unemployed. It is usually not best for workers who wish to protect their living costs beyond a single credit payment. Furthermore, the accident and sickness cover usually includes standard exclusions you may not find with other types of sickness insurance.
Does Mortgage payment protection insurance cover redundancy?
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 from the point you stopped working and will 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. Like payment protection, you can usually insure either the amount of your mortgage payment or slightly more than this but it will depend on the insurance provider's limits.
Verdict: Mortgage payment protection insurance with redundancy cover can be readily available to those with a mortgage and may offer peace of mind that your home is secure in the event that your income becomes affected by events outside your control. However, it has to be weighed up against other options that can provide more long term illness cover.
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 unless you already had it in place. Insurance companies will always check with your employer before they will agree to 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 it as the redundancy insurance almost always only covers involuntary redundancy. 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?
Redundancy insurance can be bought by almost anyone in an employed role but employees within some industries may be more difficult to insure than others. The qualifying criteria can change from time to time depending on what is going on within the economy and specifically within your market sector.
However, the following people should consider redundancy insurance:
- Anyone in a job where there is a medium risk of redundancy but there has been no announcement or rumour of redundancy
- Anyone who feels that, if they were made redundant, they would have difficulty finding a job within 3 months
What are my employer's legal obligations if I am made redundant?
Employers can offer redundancy packages that vary from one redundancy to the next and are often open to negotiations. However, employees have statutory redundancy rights so your employer must provide these as a minimum if you are made redundant. We explain how statutory redundancy payments work below.
As well as statutory redundancy payments, your redundancy payment can include, holiday pay you have accrued; a salary payment that is due for the work you have done including bonuses and benefits that may have formed part of your employment package.
Statutory redundancy payments
- After two years of working for an employer, an employee will qualify for a minimum statutory redundancy payment
- Statutory redundancy payments apply to all employed workers including those who work part-time
- 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 but the following is a summary of your statutory redundancy rights as a minimum:
- half a week's pay for every year you worked under the age of 22
- one week's 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 statutory redundancy benefits, these will be covered by the National Insurance Fund if the company has no funds remaining
You can also find more information in the government advice "Redundancy: your rights and statutory redundancy pay"
Do you pay national insurance on redundancy pay?
Statutory redundancy pay under £30,000 is tax-free. However, your full termination payment which may include earnings, bonuses, pension contributions and holidays as well as any other payment your employer offers or you negotiate could be subject to income and national insurance tax. If you would like to understand the tax rules around non-statutory redundancy payments and payments that exceed £30,000, you will find more information at "Termination payments and tax when you leave a job"
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 insurance 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* by calling 01242 894816. The advice is free and there is no obligation to take things further. For a limited time, you will receive £100 cashback if you buy your insurance this way - the offer ends on 31st January 2025.
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?
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