Money Expert > Life Insurance > Redundancy insurance
Redundancy insurance
Compare redundancy cover now to give you peace of mind should you ever lose your job.
Last updated: 07/02/2025 | Estimated Reading Time: 10 minutes
Money Expert > Life Insurance > Redundancy insurance
Compare redundancy cover now to give you peace of mind should you ever lose your job.
Last updated: 07/02/2025 | Estimated Reading Time: 10 minutes
In an uncertain economic climate, redundancy insurance can provide a vital safety net for individuals facing unexpected job loss. This guide explores redundancy insurance in the UK, outlining its purpose, benefits, and considerations to help you decide if it’s right for you.
Redundancy insurance, also known as unemployment insurance or income protection insurance, is a type of policy designed to replace a portion of your income if you lose your job due to redundancy. This type of insurance provides financial support to cover essential expenses such as mortgage payments, rent, and utility bills while you search for new employment.
Unlike standard savings or government benefits, redundancy insurance offers a predictable and tailored solution to bridge the gap between jobs, helping to reduce the financial strain of sudden unemployment.
One thing to bear in mind, if you are considering redundancy cover, is that it cannot be applied for if you know redundancy is about to happen. Redundancy cover works on a ‘what if’ basis. For this reason, payments only start after a pre-agreed waiting period.
Losing your job can lead to significant financial strain, and redundancy insurance provides a financial cushion, allowing you to meet your obligations without depleting your savings. This financial security can make a critical difference during a period of unemployment, ensuring you can continue to pay your bills and manage your expenses effectively.
Additionally, having redundancy insurance can alleviate stress and provide peace of mind, knowing you have a safety net in place to navigate the uncertainty of job loss. Furthermore, redundancy pay and insurance ensures that you can maintain your standard of living while seeking alternative employment opportunities, helping you avoid drastic lifestyle changes during difficult times.
There are different types of redundancy insurance policies available in the UK, each catering to different needs.
Please note that not all providers we work with may be able to offer all these types of cover. We recommend that you speak to an advisor to firm up your requirements and that you shop around for the most suitable policy for your needs.
In the UK, you’ll generally be able to insure up to 70% of your salary. However, if you’re earning big bucks then there may be a cap.
When you compare life insurance policies, check the restrictions on redundancy pay-outs as each insurer will have their own limits. Generally, these fall into two categories: the maximum benefit, which is the highest income an insurer will cover as a rule, and the maximum cover, which refers to the highest percentage of an income that they’ll cover.
As an example, let’s say you earn £20,000 and want to cover 75% your income, which is £15,000. An insurer, on the other hand, may have a maximum benefit of £10,000, meaning you only get 50% of your salary.
Most redundancy policies will also pay out if you fall sick or get injured and can’t return to work as a result. Plus, you may be able to protect any additional benefits you get as part of your job package, such as private health care.
Not everyone will qualify for redundancy cover. If you’re on a temporary contract, work part-time or are self-employed many payment protection policies won’t cover you. Depending on your circumstances, you may be able to apply for these products but you should watch out for exclusions.
Furthermore, if if you’re not kept on for a permanent position after a probation period or if you’re asked to leave by your employer for reasons such as misconduct, you won’t qualify for a payment. Likewise, you would not have cover for taking voluntary redundancy. It’s also possible that you may meet limitations for redundancy insurance – or even not qualify altogether – due to your age.
Finally, if you know your job is at risk and there’s a likelihood of you being made redundant, for example if redundancies have already been announced at your place of work, then you won’t qualify. For this reason, policies tend to have an exclusion period of about 3-4 months from the date the policy is taken out before you can make a claim.
Redundancy insurance policies come with several key features that define their terms and conditions. One important feature is the waiting period, which is the time you must wait after being made redundant before payments commence. Waiting periods typically range from 30 to 90 days, so it’s essential to account for this when planning your finances.
Another feature is the benefit period, which determines the maximum duration for which you can receive payments, usually between 12 and 24 months. Policies also include exclusions, which often prevent claims for voluntary redundancy, job loss due to misconduct, or redundancy within the first few months of taking out the policy.
Finally, premium costs vary based on factors such as your income, job type, and chosen coverage level, so it’s important to select a policy that aligns with your budget and needs.
To qualify for redundancy insurance, you typically need to meet certain eligibility criteria. Most insurers require you to be employed in a permanent position and work a minimum number of hours per week, such as 16 hours.
Additionally, you must not be aware of impending or involuntary redundancy at the time of purchasing the policy. These criteria ensure that redundancy insurance is available to those who genuinely need financial protection in the event of job loss.
Choosing the right redundancy insurance policy requires careful consideration of your individual circumstances. Start by assessing your financial obligations and savings to determine the level of coverage you require.
Next, compare policies using comparison websites or consult with insurance brokers to review policy features, premiums, and exclusions. It’s crucial to read the fine print to understand the policy’s terms, including waiting periods, benefit limits, and exclusions.
Finally, research the insurer’s reputation by reading customer reviews and learning about their claims process to ensure you select a reliable provider.
The cost of redundancy insurance varies based on several factors, including your salary, job sector, coverage level, and age. Higher salaries typically result in higher premiums, as do jobs in industries considered higher risk for redundancy.
Additionally, the percentage of income covered and the duration of benefits can influence premium costs. On average, redundancy insurance can cost between £20-£50 per month, but individual circumstances play a significant role in determining the actual cost.
It’s important to weigh the cost against the potential benefits to determine whether the policy is a worthwhile investment for your situation.
When you take out a redundancy cover, you and your insurer will agree on a date your policy will start once you’ve lost your job. Pay-outs typically start after a pre-agreed waiting period, called the ‘Deferred period’.
If you are able to wait some time before getting the first payment in, you’ll generally get cheaper premiums. While we all want to save money on insurance, be sure you can manage financially if you were to defer, as within this period you’ll have no income at all. That means calculating your savings and carefully budgeting for your mortgage or rental payments, debts and any other living expenses you have.
Typically, if you’ve involuntarily lost your job, redundancy cover will pay part of your income for up to 12 months afterwards or until you find a new job – whichever is sooner.
Redundancy insurance offers several advantages:
However, there are also disadvantages to consider:
Carefully evaluating these pros and cons can help you decide whether redundancy insurance is the right choice for you.
If redundancy insurance isn’t suitable for your needs, there are alternative options to consider. Building an emergency savings buffer to cover 3-6 months of living expenses is a practical way to prepare for unexpected job loss. State benefits, such as Universal Credit or Jobseeker’s Allowance, can provide government support during periods of unemployment.
Another alternative is payment protection insurance (PPI), which covers specific payments such as mortgage or loan repayments if you lose your job. Finally, check if your employer offers redundancy packages or career transition support, which can provide additional financial assistance or resources.
Claiming redundancy insurance involves several steps. First, notify your insurer as soon as possible after redundancy. You will need to provide documentation, such as proof of redundancy (e.g., a letter from your employer) and details of your employment history and salary.
Once your claim is submitted, you must fulfil any waiting period requirements specified in your policy. After meeting these conditions, you will begin receiving monthly payments as per the policy terms, helping you manage your finances during your job search.
The value of redundancy insurance depends on your financial situation and job stability. It is particularly beneficial for individuals with significant financial commitments, such as a mortgage, or those working in industries prone to layoffs.
If you lack substantial savings to fall back on, redundancy insurance can provide essential support during a challenging time. However, for those with stable employment and strong savings, the need for redundancy and insurance cover may be less critical. Assessing your unique circumstances can help you determine whether this type of coverage is worth the investment.
Buying redundancy insurance can provide essential financial support and peace of mind during challenging times. By understanding the types of coverage, key features, and potential alternatives, you can make an informed decision about whether redundancy insurance is right for you. Carefully assess your financial needs, compare policies, and read the fine print to ensure the policy aligns with your circumstances and expectations.