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.
Redundancy insurance – 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.
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.
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.
Why do I need this type of insurance?
The days of having a job for life are long gone for most of us. 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.
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.