How does Redundancy Insurance work?

Find out more about Redundancy Insurance, to see how you could insure your income against the unexpected job loss or redundancy

Redundancy Insurance works by paying out a tax-free monthly sum in the event that you lose your job involuntarily and your regular income stops.

Also called unemployment insurance, this type of income protection is designed to cover you for up to 12 months in any one claim period.

What is difference between Redundancy Insurance and Short-Term Income Insurance?

Redundancy Insurance is referred to as short-term income protection because unlike longer term accident and sickness policies, it only pays out for a limited period of time. The idea is that the policy acts as a personal safety net, providing you and your family with financial security while you look for another job.

When you buy a Redundancy Insurance policy, you’ll be asked some simple questions about your employment status and financial circumstances.

Our advisors will ask you about your occupation, your gross annual salary, and the reason you are looking to purchase income protection. The questions are designed to determine your eligibility for cover, and to help find the right policy for you at the best possible price.

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Am I eligibile to buy Redundancy Insurance?

To be eligible for Redundancy Insurance, you must be aged between 18 and 64, a permanent resident of the UK, Channel Islands or Isle of Man, working full-time (more than 16 hours per week).

As long as you can prove that you’ve been working for the same employer for at least 6 consecutive months, you should be able to make a valid claim.

At the time of purchasing a policy, it’s also important that you are not aware of any potential redundancies or restructuring in your place of work, or if you’re self-employed, any possibility that your business may become insolvent or cease to operate.

You will need to be registered with a local Job Centre and obtain a Job Seeker’s Agreement, and while you’re unemployed, you’ll be required to prove that you are actively seeking work.

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How quickly can I claim on my Redundancy Insurance?

When you purchase Redundancy Insurance, you’ll need to serve what’s called an Initial Exclusion Period (IEP) before you can make a claim. This might sound confusing, but it simply refers to the amount of time that must have elapsed before a claim will be valid.

Ranging from 60-120 days, the purpose of the Initial Exclusion Period is to stop people taking out Redundancy Insurance policies when they are already aware that their job is at risk, and claiming straight away.

When you make a successful claim on Redundancy Insurance, you’ll receive up to 12 monthly benefit payments based on a percentage of your income. The amount of money you receive depends on how much you earn, but can be as much as 65% of your gross monthly income (before tax).

Like travel and home insurance, Redundancy Insurance policies usually come with an excess period. Sometimes referred to as a deferred period or waiting period, this is the amount of time you’ll need to be unemployed before you receive your first payment.

When you buy Redundancy Insurance, our advisors will ask how long you’d like the excess period to last: 30, 60, 90 or 120 days. Most policies also have a ‘back to day 1’ option, which will pay you in arrears from the very first day of your claim.

It’s important to think carefully about the excess period you choose, because the shorter the excess, the higher the cost of your monthly premium (how much you pay each month).

Most people are confident that they can support themselves for the first month, and so select a 30 day excess period, but choose the one that’s most suited to your financial circumstances.

The majority of insurers will require you to keep paying the monthly premiums during your claim period, so make sure you take this into account when customising your policy.

If you already have Redundancy Insurance but would like to transfer your cover, some insurers will give you the option to waive the excess period, but it’s always best to check before making a final transfer.

For more information about Redundancy Insurance, we recommend speaking to an advisor. Our expert income protection specialists will search the market to find the right policy for you.

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