With fears of a tariff-led recession, the impact of employers’ National Insurance hikes, and the possible coming of job-snatching AI, the threat of redundancy could be growing.
Businesses across the country are struggling. Call it ‘rationalisation’, ‘reorganisation’ or ‘reducing headcount’, it is painful when it happens to you. It can knock your confidence, and make you question your life – but its worst effect is financial.
If your salary stopped coming in, how would you pay the bills? How long could you last?
It’s vital to have a plan in place to enable you to continue paying your mortgage and other household expenses should you find yourself out of a job – particularly if you have a family to provide for.
Fortunately, although there might be little you can do to prevent being made redundant, it is possible to insure against it. At Continuum we are looking at redundancy insurance.
What is redundancy insurance?
You can’t simply go out and buy ‘redundancy cover’. Standalone redundancy policies aren’t widely available. However, there are several different types of specialised income protection insurance which might be able to help out if you lose your job.
Income protection. This is a type of insurance designed to replace a percentage of your income if you are unable to work due to illness or injury. It pays a regular tax-free income, with payouts usually between 50% and 70% of your salary. It covers both employed and self-employed workers.
It can help cover essential living costs such as the mortgage, rent and bills until you are able to return to work or ready to retire. But while it can help, some types of Income protection don’t provide any pay out if you get made redundant.
Mortgage payment protection insurance. As the name implies, these policies are designed to cover your mortgage repayments if you lose your job through no fault of your own. So, as well as redundancy, they could help you keep a roof over your head if you became too ill to work or were incapacitated by an accident.
Policies usually start paying out three months after your salary stops coming in and continue to pay for up to 12 or 24 months.
Depending on the cover you choose, some policies may pay out an additional sum to help with other bills. However, this type of insurance will not cover your entire income.
Accident, Sickness and Unemployment (or ASU). ASU cover can replace your income if you are unable to do your job due to accident or illness. It also can cover a proportion of your salary if you’re made redundant. It won’t cover you if you take voluntary redundancy, or you’re sacked for performance or behaviour problems.
It certainly won’t pay out if there was any suggestion that redundancies were on the cards when you took out the policy.
Generally, ASU policies will provide payments for up to one or two years, or until you can get back to work.
Payment protection insurance. These policies cover payments owed for specific debts, such as loans or credit cards, in case you’re unable to keep up with them for various reasons, including being made redundant.
You need to wait before you claim
If you have an insurance policy that includes some form of redundancy cover and you lose your job, you’ll be paid a tax-free monthly income – but only after you’ve been off work for a pre-agreed waiting period of up to three months. The longer this period is, the lower your premium – so it’s worth looking at a couple of options. If you choose a longer waiting period, make sure you can manage while you wait for your pay-outs to start.
This deferred period protects the insurance provider from people taking out policies when they know they’re going to be made redundant.
Do you need redundancy insurance?
If you have a stable job with good benefits, you might not need mortgage protection insurance. However, if your job is less secure, it could be a valuable safety net.
But remember, if you are self-employed or on a temporary contract many payment protection policies won’t cover you.
To discuss whether you should make redundancy cover part of your financial protection package, talk to us at Continuum. We can help you look at the costs and the benefits – and help you arrange the appropriate cover for your needs.
What is mortgage protection insurance? MPPI explained - Which?
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular protection product and you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage
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