Published by Joe Davine on
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Insure yourself against unexpectedly losing your job

Redundancy insurance is designed to protect you if you lose your job or are unable to work through no fault of your own. Short-term income protection can cover you for a short period of time, usually around 6 to 12 months.

Being made redundant often means that you get a redundancy package from your employer. However, this isn't always enough to help you while you're looking for another job. Redundancy insurance can help to ease your mind, helping to cover your living costs while you get back on your feet.

How Does Redundancy Insurance Protect You?

Put simply, redundancy insurance is designed to protect you if you lose your job. If you keep up with the premiums then you will be paid a monthly income (tax free) when you are made redundant. It can be used to cover a range of costs, such as your rent or mortgage/loan repayments, along with other expenses.

Something to bear in mind when taking out a redundancy insurance is that your policy may not start paying out immediately when you are made redundant, and the longer you agree to wait before it starts paying out, the lower the premiums will be.

It's also important to note that if you are voluntarily made redundant, your insurance won't cover you.

What Types of Redundancy Insurance Are There?

Redundancy insurance comes in three main forms:

  • Mortgage payment protection insurance (MPPI): A policy that will pay your mortgage repayments for up to twelve months after you are made redundant.
  • Short term income protection insurance (STIP): A policy that, for a fixed period, will pay you a percentage of your income when you are made redundant.
  • Payment protection insurance (PPI): A policy that pays out a set amount to help you cover your loan repayments when you are made redundant. The length of time the payments continue varies between 12 and 24 months.

These policies will sometimes also cover accident and injury. In fact, some insurance providers will insist that you insure against these possibilities as well as unemployment when taking out a policy.

Who Can Benefit from Redundancy Insurance?

Anyone in employment might benefit from redundancy insurance. However, you mind find it particularly useful if you have expenses such as a mortgage or other debts to pay off.

Missing these payments could be terrible for your credit score or could even lead to you losing your home or other assets. MPPI is specifically intended to pay for your mortgage, whereas other types of insurance are more flexible.

If your insurance policy has a waiting period before it will pay out - as most will - you would need to be able to survive without it until then. You should check what redundancy package your employer offers, so you know what you're likely to get if you are made redundant.

What Might Make it Difficult for Me to Get Redundancy Insurance?

It's important to remember that not everyone will find it easy to buy redundancy insurance. For example, you may find it difficult to take out if you are:

  • Over retirement age
  • Working part-time
  • Self-employed (although it’s not impossible - see below)

How Much Cover Can You Get?

Deciding how much redundancy cover you need is an important part of finding the right policy for you.

Mortgage payment protection insurance (MPPI) is designed to cover your monthly mortgage payments. You should consider your monthly payments and how much of your mortgage you have left to pay off.

However, short term income protection insurance (STIP) will pay out a proportion of your income for a fixed period. This is usually around 50% or 60% of your income, so don't rely on having your entire salary replaced by redundancy insurance. The period the payments last varies but is usually between 12 and 24 months after you’re made redundant.

Redundancy Insurance: Drawbacks

Taking out redundancy insurance isn't for everyone. Some of the drawbacks include:

  • The waiting period for the policy to start paying out may be quite long.
  • Unemployement Insurance won’t pay out if you take voluntary redundancy.
  • Self-employed (although it’s not impossible - see below)
  • Premiums are often quite high.
  • There can be certain conditions of your policy that make redundancy insurance difficult, such as having to have worked for the company for a certain period (usually at least 6 months) or not filing a claim within a specified period.

It’s important to check the benefits and drawbacks of each policy before taking one out. Our comparisons can help you find the best deal.

Can Self-employed People Get Redundancy Insurance?

Redundancy insurance might seem like it would exclude you if you’re self-employed. After all, you don't have an employer to make you redundant. But there is still a chance that a self-employed person could be covered redundancy insurance, but it can be difficult.

Most policies will say that a self-employed person needs to be able to prove that they have involuntarily stopped trading and have made this clear with HMRC. You would also likely need to show that you're registered as unemployed and actively looking for work.

It might be better for self-employed people to look into other ways to protect their income if they want to be sure they have a safety net, but there are some redundancy insurance options available to look at.

Where Can I Get Unemployment and Redundancy Insurance?

Right here. Click the button below to get an accurate quote within minutes.