This cover usually is available as an add-on to Income Protection insurance but may be able to be purchased separately through some insurers. Redundancy Insurance is not often part of have Income Protection insurance, and you have to add it as an optional extra.
Why should you have redundancy insurance?
Firstly, not all occupations can get this type of cover, so you will need to check with your adviser, whether it is available for your occupation class or industry. Think for a moment, what your options are if you were made redundant, how would your household cope without the regular income. If you think finances are tight now, how tight would they be if you were made redundant? You have a few financial options which could be;
- Use redundancy payment to replace lost income until you get another job, but that is if you ever get any redundancy payment.
- Use your hard-earned savings to make up for the shortfall in household income.
- Borrow from the bank and family? That may be difficult if you do not have a job.
- Get a mortgage holiday, most likely a good option, but there are limitations on these and the maximum mortgage holiday is up to 90 days, but that is totally at the banks’ discretion.
Here are the main points to keep in mind about this type of cover.
When you first take out this cover, you will have a 90 day stand down period before your cover starts. The reason for this is to avoid people taking out this type of cover after they find out about their redundancy. You will need to add this cover before you get made redundant, and there are some disclosure requirements around telling the insurer if you are aware that you are or may be made redundant. Your benefit will be paid in monthly payments up to six months, and your insured benefit is usually the same as your income protection benefit, but please check with us to make sure this is the case. Your redundancy must be involuntary, so if you are offered the option to take the redundancy, and you take it, the insurer will not pay the cover if you choose to take redundancy.
Should you get redundancy insurance?
If your household is totally reliable on your income then job loss may be disastrous. However, if you have a good financial buffer and maybe a secondary household income, perhaps it’s not as critical. You could always do a budget check buy merely doing the following:
- Add all your after-tax income per month and get a total
- Add all your household expenses and get a total
- Subtract your primary income from your monthly income
- Work out how much short you are in your budget
- Make a plan on how you are going to make up for that monthly shortfall (if any)
If you have reserves, family, mortgage holiday etc. then you may be ok. If you do not have any of those options available to you, please contact us, and we can give you some advice about your redundancy insurance options.