Does my insurance cover me for redundancy?

Financial breathing space if you're made redundant

We live in a volatile economic era where industries are disrupted at an ever-accelerating rate. Fortunately, there are insurance options that provide you with financial breathing space if you're made redundant.

• Some income protection policies include cover against your involuntary redundancy.
• You can't be insured for voluntary redundancy. For example, if you choose to take a redundancy package, resign from your job or sell your business, you won't be insured.
  
• The policy usually needs to have been in force for a period of time – up to six months in some cases – before you can make a claim.
• Payments will usually be made while you remain unemployed but may last for a set period, for example, three months.
• Generally, the amount of money you receive from your former employer or the government in the form of a settlement or payout is irrelevant.

What is redundancy insurance?

Redundancy insurance is often called unemployment insurance and provides short-term financial benefit if you are made redundant involuntarily. For example, you lose your job as a result of a business restructure or a business folding. Generally, redundancy insurance isn’t a stand-alone policy you can take out. Depending on the provider, it’s an optional extra you add to an existing income protection policy or home loan protection policy.

Can I be insured for redundancy?

Yes and no. You can't insure against being made redundant the way you can insure against having your car stolen. However, some income protection policies do include cover against your involuntary redundancy.

If an income protection policy includes this cover it's usually a separate benefit or an additional option so check the individual cover to see whether it is included.

When it comes to being able to repay loans, some types of insurance, such as mortgage protection insurance, ensure your loan repayments can continue even if your income disappears. These types of insurance can be discussed with you on application by your lender or financial adviser. Policies will generally include cover (or have an additional option for) involuntary redundancy cover. ANZ offers ANZ Home Loan Protection insurance for home loan customers that covers home loan repayments for up to 90 days if you become involuntarily unemployed.

Who needs redundancy insurance?

It depends on the individual and their financial circumstances, some people may have enough in savings to cover household costs for 6+ months or have assets that can be sold quickly to cover their income short-term. However if you suspect you'd struggle to keep up with your mortgage, personal loan, car or credit card repayments for a few months after being made redundant, then it's worth considering covering yourself against this eventuality.

What does redundancy insurance cover?

Redundancy insurance covers people who have been made involuntarily unemployed. It does not cover you for voluntary redundancy. For example, if you choose to take a redundancy package, resign from your job or sell your business, you won't be insured.

Do I need life insurance too?

Life insurance and redundancy insurance are two very different products. Life insurance provides you and your loved ones with a lump sum amount in the event you are diagnosed with a terminal illness or you die. The amount of cover can be used to cover the mortgage, school fees and pay-off debts and can be up to $1.5million depending on the provider.  Redundancy cover is used as short-term income replacement. So you can think about life insurance as a long-term protection strategy and redundancy cover as a short-term protection option.  Depending on your circumstances and financial responsibilities, both insurance types could be a good fit.

Can I access my super early if I’m made redundant?

Accessing your super early or before retirement age is only allowed in very specific circumstances. Being made redundant isn’t one the allowed circumstances, however you may be able to access some of your super early if able to prove you’re experiencing severe financial hardship or on compassionate grounds.

Can anyone be insured against redundancy?

It's always important to check the policy to see if you're eligible, but this form of insurance is generally for employees who have a full-time job or work at least 20 hours a week. Self-employed and contractors who work at least 20 hours a week may be able to receive a benefit payment in the event of misfortune such as insolvency or bankruptcy, but it doesn't cover a contract coming to its end or work simply drying up.

Is there a waiting period?

The policy usually needs to have been in force for a period of time – up to six months in some cases – before you can make a claim if you are made involuntarily unemployed.

Policies vary, but if you want to make a claim after being made redundant you will usually need to sit out a waiting period. This typically lasts 30 days. If you haven't found another job during this waiting period, then you can make a claim.

How much would I be covered for?

Depending on the type of policy you have, it pays an amount equivalent to your periodic repayments on your mortgage, personal loan, or credit card, or a proportion of your monthly income as a monthly benefit. Payments will usually be made while you remain unemployed but may last for a set period, for example, three months.

As soon as you find new employment, payments under your policy will stop.

Are there any conditions attached I need to be aware of?

As with any insurance policy, be sure to check the product disclosure statement. If you had reason to believe you’ll be made redundant, bankrupt or insolvent when you applied for the insurance, you generally would not be eligible to receive a benefit.

It also must be an involuntary redundancy – you can't have volunteered for redundancy or have been fired for performance reasons.

You'll also generally need to provide some proof, such as registering as a job seeker with Centrelink or recruitment agencies, that you are seeking new employment.

It should also be noted that you can't take out multiple forms of insurance against redundancy then claim them all if you lose your job.

Am I still covered if I get a big payout or apply for unemployment benefits?

Generally, the amount of money you receive from your former employer or the government in the form of a settlement or payout is irrelevant.

Is making a claim complicated?

It’s no more difficult than making any other insurance claim. You need to provide evidence that you have been made involuntarily redundant and meet all the other criteria – such as having met the qualifying period and not having had any foreknowledge of the redundancy. Your employer is legally obligated to provide a Notice of Termination when making you redundant, which means you should already have some of the supporting paperwork on hand.