No one likes to contemplate the prospect of becoming redundant, but in the stable economic times we live in today, it is an unfortunate fact of life. While it is impossible to predict when you might find yourself without a steady source of income, there are steps you can take to protect yourself from the future possibility. By investing in redundancy insurance, you can enjoy peace of mind in knowing that your expenses will be covered no matter what your job future may hold.
What is it?
Redundancy insurance is basically a premium that is taken out to cover your income in the event you become involuntarily unemployed. This type of insurance usually does not cover situations where you quit, retire or knowingly leave a job for other reasons. It is particularly helpful today, with many Brits finding themselves redundant as the result of a sluggish economy. When these events occur, you may not be prepared to make your mortgage payments or cover other expenses without that regular income to count on. An insurance policy will kick in after redundancy to cover bills or your mortgage payment, by offering a percentage of your regular income every month.
Characteristics of Redundancy Cover
Redundancy policies vary considerably, allowing policy holders to customize the insurance to their unique needs and budget. However, there are a number of characteristics that the majority of redundancy cover policies share:
- All kick in after a set period of time, usually between one to three months after redundancy has occurred
- Most of these policies will continue to provide benefits for up to 12 months or until you find gainful employment; whichever comes first
- Some policies will provide coverage for up to 24 months, but they typically come with higher premiums
- Payments will total a percentage of your salary, which may be 50-65% of your previous monthly income
- Most are paid out after involuntary redundancy, usually from a layoff situation
- Money received from this insurance is usually tax-free, if it is going directly to pay bills or make loan or mortgage payments
While redundancy insurance may not be the right choice for everyone, it is a very helpful addition to your portfolio if you are the primary breadwinner for your family, own a mortgage or possess a significant amount of other debt. Redundancy cover is particularly helpful in tough economic times like the current, where many Brits are concerned about the stability of their jobs and unsure of how they would pay their bills if they became redundant without warning.
Types of Redundancy Cover
There are a number of different types of redundancy cover to choose from, allowing you to select a policy that will directly address your unique needs and budgetary constraints. Some of the most common include:
- Mortgage Payment Protection Insurance (MPPI) – This type of redundancy cover is specifically used to keep up your mortgage payments if you become redundant. Mortgage cover is typically 65% of your regular income, allowing you to make your mortgage payment and cover related expenses like home insurance or life assurance as well.
- Loan Payment Protection Insurance – If you have a significant amount of debt that you are worried you would not be able to cover without your monthly paycheck, this type of redundancy cover might be the right choice for you. Loan cover can offer you peace of mind that you will be able to stay current with credit cards or other types of debt, so late payments and collection calls do not become the norm in your household should you become redundant.
- Income Payment Protection Insurance – This type of redundancy cover can total up to 50% of your income amount, which is quite significant when you consider your insurance payments are usually tax-free. These payments can be used at your discretion; to cover whatever bills or expenses you see fit.
- Accident, Illness and Redundancy Insurance – Many types of insurance cover combines a variety of situations. This type of insurance provides payments if you should become unable to work due to an accident, illness or involuntary redundancy. Payments can typically continue for 12 to 24 months and require documentation of the medical condition in addition to the reason for redundancy.
In addition to the different types of redundancy cover, individuals can also choose to add additional coverage to a basic redundancy policy. Some of the most common additions include:
- Critical Illness – This addition covers you if you become unable to work because of a potentially life-threatening or chronic illness.
- Disability – This coverage is used for individuals who are no longer able to hold down a job because of a serious disability.
While these additions are usually available at an extra charge, the additional cost is often worth the peace of mind in knowing that your salary will be covered no matter what life situation you might face in the future. In addition, some redundancy policies might provide a few extra features, particularly if you are opting for a more expensive policy. Make sure to ask your agent what features might be included with the cover you choose to ensure you get the most benefit out of your purchase.
How it Works
While the details of a redundancy cover policy may differ from company to company, most share the same basic process in terms of applying for and receiving benefits:
- If you become redundant, you will need to apply for your insurance payments per the agreement in your policy.
- Most require you to provide proof of your redundancy, as well as documentation to show you are actively looking for another job. This may include registration with an employment agency or copies of applications and denial letters you have sent and received.
- If you are adding accident or illness coverage to your policy, you will also have to provide documentation of your medical condition in respect to how it prevents you from working as well.
- Your insurance company will determine if you have worked for a sufficient amount of time to qualify for your benefits. For example, some insurance companies require that you are employed with the same company for at least six months before becoming eligible for insurance benefits.
- Most insurance policies will not allow you to apply for benefits for a set period of time after the policy is purchased. This is to discourage people who know they are about to become redundant from applying for insurance cover at that time.
- Depending on the type of policy you own, you may need to wait 30, 60 or 90 days for your first insurance payment
- If you are self-employed, you may need to provide documentation of bankruptcy before you can become eligible for benefits.
Because there are many steps involved with requesting insurance payments after redundancy, it is important to have a complete understanding of your redundancy cover before you sign on the bottom line. Choose the policy that works best for you and know what will be required when the time comes to request benefits. This means reading the fine print of your policy and asking questions before you make the final purchase. This will alleviate stress from an already charged situation, because you will know the rule of the process before you even begin.
Getting the Best Deal on Redundancy Cover
If you have determined that redundancy cover is a good choice for you, there are some tips to consider to ensure you get the best deal on your policy. First, shop around for the most desirable rates, from a variety of insurance providers. You may find the most expensive rates through credit companies trying to sell redundancy cover along with their credit accounts or loans. On the other hand, the cheapest redundancy insurance is often located through online insurance companies that can provide less expensive policies because they have less overhead to grapple with. Make sure when you compare policies that you are comparing apples to apples in terms of the amount of coverage you receive and when the coverage will kick in.
It is also important to consider your individual needs when shopping for a policy. If you have a significant amount of money in a savings account that could keep you afloat for a month or two, opt for a redundancy policy that doesn't kick in until 60 or 90 days after the date of your redundancy. You won't miss the payments if you already have money in the bank, and you will enjoy cheaper premiums for your policy. By the same token, you can choose a less expensive 12 month policy over one that lasts 24 months, if you are reasonably certain you could land gainful employment in a shorter period of time. If you decide you want additional cover, such as critical illness or disability insurance, tack that onto your redundancy policy to save money over purchasing a number of separate insurance policies.
Redundancy cover is an important addition to your insurance portfolio, particularly in uncertain economic times like these. If you provide the majority of your family's financial support, own a home mortgage or have wracked up a significant amount of debt, a redundancy policy can provide peace of mind in knowing that your family will be financially covered no matter what the future might hold.
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