Is redundancy insurance worth it?

What is redundancy insurance?

Redundancy insurance is a type of short-term income protection designed to help you pay your bills if you lose your job. If you’re made redundant, your insurance provider will give you a tax-free monthly payment for up to 12 months. You’ll receive up to 70% of your gross monthly income and can use this money for your mortgage or rent, household bills, credit card payments and other expenses. 

How does redundancy insurance work?

Redundancy insurance works just like any other type of insurance! You will pay a monthly premium to an insurance policy - e.g., paying 'X' amount to an insurance policy with a benefit amount of 70% of your gross monthly income. If you're paying towards this cover and you're made redundant at your job - you can then claim against your insurance. If your claim is successful, you'll start to receive up to 70% of your monthly salary each month for up to 12 months, or until you find another job (whichever is sooner).

Unfortunately, you might not be eligible for redundancy insurance if:

• You’ve already been told that your job is at risk
• You’re planning on taking voluntary redundancy
• You’ve been fired or dismissed for misconduct
• You chose to leave your job
• Your employer offers you an alternative role and you turn it down
• You’re self-employed
• Your work part-time
• You’re on a temporary contract 

Is redundancy insurance worth it?

Yes, it can certainly be worth getting redundancy insurance, particularly if you and your loved ones rely on your income and you don’t have 6-12 months of expenses in savings. Very few people think they’re going to be made redundant, but in 2022 237,017 people were made redundant in the seven months leading up to the end of July. If you have a mortgage, personal loan, credit cards or other types of debt, redundancy insurance can help you keep on top of your repayments while you’re out of work. You’ll be able to avoid late payment fees, additional interest charges and a damaged credit rating. 

If you have children or your partner/spouse depends on you financially, redundancy insurance can help you avoid financial uncertainty after losing your income. Instead of worrying about money and looking for ways to cut costs, you can focus on finding a new job.

If your employer has recently made redundancies, it may make sense to get redundancy insurance sooner rather than later. However, many policies have a waiting period of between three to six months before you’re allowed to make a claim. So if you take out redundancy cover now and you’re let go in the next few weeks or months, you might not be eligible for a payout. 

Another reason you might want to get redundancy insurance is if you work in an industry that’s seen a large number of redundancies in the last few years and might find it hard to get a new job if you lose your current role. Redundancy insurance could give you up to 12 months of protection, giving you plenty of time to find a new position or retrain in a different industry. 

What’s the difference between redundancy insurance and income protection?

Income protection is a type of insurance that pays you a regular, tax-free income if you’re unable to work due to illness or injury. You’ll receive financial support until you return to work, retire or pass away. However, you won’t be protected if you’re made redundant. You’ll need redundancy insurance for that. In comparison, redundancy insurance won’t cover you if you’re out of work due to illness or injury, so you’ll need to work out which issues pose the biggest risk. 

If you think you’d be able to find a new job fairly quickly, redundancy insurance might not offer the best value for money. You may be better suited to an income protection policy, particularly if you’d struggle to pay your bills if you were ill or injured for an extended period of time. 

Income protection won’t be right for everyone either. If your employer offers a generous sick pay package or you’d be able to work from home following an illness or injury, income protection might not be worthwhile. You may be better off with redundancy insurance instead, particularly if you don’t have much money in savings or your loved ones depend on you financially. 

It’s possible to have both redundancy insurance and income protection at the same time. However, you need to make sure your premiums are affordable before purchasing a particular policy. Although it’s possible to cancel your insurance at any time, you’ll no longer be protected if you need to make a claim. 

Learn more: The best income protection policies in the UK

Does income payment protection cover redundancy?

No, salary payment protection (aka income protection) doesn’t cover redundancy. If you have this type of policy in place and you’re either made redundant or fired, you won’t receive any payouts from your insurer. If you’d like to be financially protected if you ever lose your job, you’ll need to choose redundancy insurance or mortgage insurance. 

Salary payment protection also won’t pay out if you pass away. If your loved ones rely on your income to pay the mortgage or rent and other living expenses, a life insurance policy could provide them with financial stability while grieving.

Learn more: What is critical illness cover?

Does mortgage insurance cover redundancy?

Yes, mortgage insurance can cover redundancy, though the exact terms of your policy depend on the level of cover you choose and your personal circumstances. Mortgage protection insurance can provide cover if you’re made redundant, unable to work due to a serious illness or injury, or both.

Learn more: What is mortgage protection?

*Prices where indicated in adverts are based on the below criteria, as of 16/09/2024. Prices quoted may vary depending on your own individual circumstances including age, medical history, the sum assured, length of policy - and other variables.

Income Protection Insurance from £6.37 per month: 25 year old male client- non-smoker- administrator - 3 month deferment period- £1,500 to be paid out each month for a maximum of two years per individual claim- covering him up to the age of 65- £6.37 pm