Redundancy Insurance - A Quick and Easy Guide

Redundancy InsuranceAs official government figures show for certain that the United Kingdom's unemployment rate is now at its highest for a decade (Source: personaltoday.com), how can you be sure that you and your family are safe, if you are the next victim of the 'mass redundancy' that seems to be sweeping the nation?

The Confederation of British Industry (CBI) is now predicting that 2.86 million Britons will have been made redundant, in two years time, as a direct result of the shrinking economy and what they describe as the “worst {economic slump} since 1991” (Source: CBI via FT.com January 2009).

Whilst little can be done for those who have already been made redundant, there is still a glimmer of protection hope in the form of redundancy insurance for those who may yet be affected.

What is Redundancy Insurance?

Redundancy Insurance (also known as Income Payment Protection Insurance, Mortgage Payment Protection Insurance or Unemployment Insurance) is designed to cover your income or mortgage/rent payments if you are made redundant through no fault of your own and with no prior knowledge or redundancy when you take the policy.

It comes with the option to either protect your mortgage or rent payments specifically or to more generally cover a percentage of your income (up to 65% with some insurance companies).

You pay a monthly rolling premium for your redundancy insurance which then covers you for the following month. The premium is determined by, amongst other things, the amount of redundancy cover your require and the type of cover (general income or mortgage).

When will it protect me and pay out?

Your redundancy insurance will protect you when you are made involuntarily unemployed through compulsory redundancy from your place of work.

Your insurance can begin paying from as little as the 30th day after your redundancy and can be backdated to day one to ensure you do not suffer from a period with no earnings or household income.

For how long will my redundancy cover pay out?

Your cover will pay a set amount (determined when you take the cover) on a monthly basis after you are made redundant and will continue to make monthly payments to you until you are either back into work or after 12 months (24 months with some Mortgage Payment Protection covers) worth of payments, whichever is soonest.

Do I have to have a mortgage to be eligible?

No, whilst a mortgage is a very valid reason to ensure you are adequately protected it is not essential to been accepted for redundancy insurance.

Redundancy InsuranceAll you need is an income which your employer will confirm if the worst event happens and you are made redundant.

Does voluntary redundancy qualify?

Unfortunately no, your redundancy must be completely involuntary and the insurance company will write to your employer to confirm this if you need to make a claim. Along the same vein, the cover will also not payout if you are made unemployed due to any other voluntary reason or through misconduct.

How much will my redundancy insurance cover cost?

The cost of your cover depends on the amount that you wish your cover to pay out to you, on a monthly basis, if you need to make a claim. Premiums start from as little as £3.00 per month per hundred pounds of cover and will also depend on if you are looking to protect your mortgage or general income.

Am I covered from day one?

Whilst you are able to get redundancy insurance which will backdate to the first day of your redundancy, there is one important exclusion period which you must be aware of. Many insurance companies impose an 'initial exclusion period' which means they will not pay a claim if you are made redundant in the first 90 days of your cover. The 90 days may change depending on the insurance company involved and as such it is important that you check your policies key features document.

Once the initial exclusion period is completed you are able to make a claim for an redundancy occurring from the that point onwards.


Insurance Glossary

Insurance Jargon BusterInsurance Jargon Buster - A Plain English Guide

Like with most subjects, insurance comes with its own language which can include its own confusing terminology. Our Jargon buster aims to help you clarify what some of the terminology you might find on our website means so that you can fully understand the policies and covers you are considering.

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