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Can you insure yourself against redundancy?


Unless you have a never-ending pot of savings, there’s a high chance that you have worried at least once about how you’d pay your mortgage and bills if you were to lose your job. In this article, we are going to explore whether it is possible to insure yourself against this eventuality, and take a look at the different options available to you should the worst happen.

What is redundancy insurance?

While there aren’t any failsafe ways to insure yourself against losing your job, there is such a thing as redundancy insurance. 

Otherwise known as unemployment insurance, redundancy insurance is a form of income protection that will pay a tax-free monthly payment for up to 12 months, to cover a percentage of your income while you look for a new job. 

These payments mean that you are able to continue paying your mortgage and bills, reducing the risks of getting into debt, and helping to lessen the stress of losing your job.

How does redundancy insurance work?

Much like other insurance policies, you will pay monthly or annual insurance premiums, and if you become eligible during this time, you can make a claim. In order to make a redundancy claim, you need to have been involuntarily made redundant whilst you are paying your premium, and you will need to register at a Jobcentre Plus and submit the relevant paperwork to your provider.

If your claim is successful, you will receive a payment each month until you find a replacement job, or until your policy term ends (whichever comes first). A policy is usually for a period of up to 12 months, and the payment is typically up to 70% of your annual income (before tax), but may be less if you’re on a larger salary.

What policy options are available if you lose your job?

There are three different types of redundancy insurance available to you if you lose your job. Each option is tailored to address specific requirements, offering individuals a range of choices to protect their livelihood and help to ease the transition during difficult times. Understanding these redundancy insurance options means you can make informed decisions about your financial well-being in the face of unforeseen circumstances.

Mortgage Payment Protection Insurance (MPPI)

Mortgage Payment Protection Insurance (MPPI) is typically taken out with your mortgage provider alongside your mortgage, and is a type of insurance designed to provide financial assistance to individuals who are unable to meet their mortgage repayments due to unforeseen circumstances such as job loss. 

Typically, MPPI covers mortgage payments for a specified period, such as 12 or 24 months, after a valid claim is made. 

Payment Protection Insurance (PPI)

Payment Protection Insurance (PPI), sometimes referred to as Accident, Sickness and Unemployment (ASU), is a product commonly sold alongside loans, credit cards, and mortgages. The purpose of PPI is to provide coverage for people in case they can’t meet their loan repayments due to unforeseen circumstances that could affect their ability to work.

PPI policies help you to keep up with your loan repayments by paying out a set amount for a predetermined period - usually between 12 and 24 months - and often have a waiting period of three months before the payments start.

Short-term Income Protection Insurance (STIP)

Short-term Income Protection Insurance (STIP) is a fixed-period policy that provides financial support in the form of regular income payments if the policyholder is temporarily unable to work due to health issues or redundancy. Unlike income protection insurance, which only covers you for illness or injury, STIP also covers redundancy.

When should you consider buying redundancy insurance?

Redundancy insurance isn’t for everyone, however there are a few circumstances in which it would be recommended to have redundancy insurance. For example, if you’re in a job where there is a medium likelihood of redundancy in the next 6 months, and you don’t think you will be able to find another job within three months of losing yours, you are in a position where it would be worth purchasing redundancy insurance. 

Make sure you shop around for the best deal - don’t just purchase automatically from your loan or mortgage provider.

When not to purchase redundancy insurance

If redundancies at your company have already been announced, or you have taken voluntary redundancy, it’s not worth taking out a policy as you will be unable to claim and your provider won’t pay out.

Redundancy insurance also only covers you if you have been made redundant - not if you have been fired.

If you are self-employed, work full time or are on a temporary contract, make sure you read the terms and conditions of your policy carefully, as these are restrictions on many policies and you won’t be able to make a claim through certain providers.

How much is redundancy insurance?

The price of redundancy insurance varies across providers and is influenced by several factors, including:

  • Age: PPI policies tend to be more expensive the older you get because you are more likely to become ill and need time off work.

  • Cover Level: The percentage of your salary that you choose to insure impacts your premiums. Opting for a higher salary coverage will result in higher insurance costs.

  • Benefit Period: You have the flexibility to select how long you want your insurance payments to last. The timelines typically range from 12, 18, or 24 months. Longer benefit periods usually mean higher premiums.

  • Waiting Period: Agreeing to a longer waiting period before receiving payments can reduce your premiums. The longer the waiting period, the cheaper your insurance payments are likely to be.

 

In conclusion, there are multiple different products that you can get to safeguard against the financial implications of unexpected job loss.

However, the decision to invest in such insurance should be made with careful consideration of individual circumstances. While redundancy insurance can offer peace of mind and financial security, it is essential for individuals to thoroughly research and understand the terms of policies before making a commitment. 

 

Whilst Wiltshire Friendly doesn’t offer insurance against redundancy, we do offer different income protection insurance products. To learn about the types of income protection insurance that we do offer, contact us today and speak to one of our team.