Redundancy Insurance

What is redundancy insurance?

Redundancy cover is a specialist type of income protection insurance to safeguard your monthly expenses if you are made redundant involuntarily. It provides up to 70% of your gross monthly income for up to 12 months and can be used to meet a range of financial outgoings, such as your mortgage, loan and credit card repayments and household bills. In contrast, other types of insurance, such as mortgage protection insurance, for example, can only be used for one specific expense.

Office for National Statistics figures show that between October and December 2023 115,900 people were made redundant in the UK[1]. Yet according to the Financial Lives 2022 survey, 1 in 4 UK adults don’t have enough savings to cover 3 months of expenses if they were unable to work[2]. Redundancy cover can help cover these expenses in the eventuality you were made redundant.

[1] https://researchbriefings.files.parliament.uk/documents/CBP-9366/CBP-9366.pdf
[2] https://www.fca.org.uk/data/financial-lives-2022-early-survey-insights-vulnerability-financial-resilience

How does redundancy insurance cover work?

As with other types of income protection insurance, a redundancy insurance policy is paid for via monthly premiums and pays out if you become redundant involuntarily. To find the

right policy, you can compare redundancy insurance quotes and benefits before deciding which best suits your lifestyle and circumstances. We strongly recommend talking to one of our advisors so that they can help you navigate through the different options as well as exclusions.

Most policies provide financial cover for up to 12 months following involuntary unemployment. If you are made redundant, you will need to provide your insurer with the relevant documents from your employer to confirm your claim.

What affects my redundancy insurance policy?

● Employment Status: Most redundancy insurance policies require you to be in continuous, full-time employment for a certain period before the policy begins. Part-time, temporary, or contract workers may face restrictions or may not be eligible.

● Age: There are often age limits for eligibility, both for taking out the policy and for the policy's expiration.

● Knowledge of potential redundancy: Situations where you were aware of potential redundancy before taking out the policy.

● Employment History: A stable employment history might positively affect your policy terms, whereas a history of frequent job changes might make obtaining coverage more difficult or expensive.

● Occupation and Industry: Certain professions or industries considered high-risk for redundancies may face higher premiums or exclusions.

● Level of Coverage: The amount of coverage you choose will affect your premiums. Policies typically cover a percentage of your income for a fixed period.

What our experts say about redundancy insurance

“There is usually a 30-day deferred period, also called a waiting period, until you receive the first tax-free monthly payment, however depending on your policy, payments may be backdated to the day you were made redundant. Make sure to check with your policy provider.”

Do I need redundancy insurance?

There are a few government support options, such as statutory pay and jobseeker’s allowance, however depending on your household outgoings and savings, it may be worth enquiring about redundancy insurance.

What does redundancy insurance cover?

Redundancy insurance is designed to cover a portion of your salary if you unexpectedly lose your job through no fault of your own. It covers you for compulsory redundancy as well as the company going into administration. The kinds of expenses it can take care of include:

● mortgage repayments or rent

● council tax

● utilities bills

● loan and credit card repayments

● food shopping

● family activities, hobbies and school expenses

What isn't covered by redundancy insurance?

There are a few scenarios when you won’t be covered by your redundancy insurance:

● Voluntary Redundancy: If you choose to accept a redundancy offer from your employer, most policies will not cover this, as it's considered a voluntary action.

● Dismissal for Misconduct: If you're dismissed from your job due to misconduct, this will typically not be covered by redundancy insurance.

● Resignation: If you choose to resign from your job, regardless of the reason, this won’t be covered as it’s voluntary.

● Known Risk: If there was a known risk of redundancy at the time you took out the policy, or if you were already notified about potential redundancy, claims related to this event are likely to be excluded.

● Self-Employment or Freelancing: Many redundancy insurance policies are designed for employees and do not cover income loss for self-employed individuals or freelancers.

● Temporary or Contract Work: If you are working on a temporary or contract basis, you may not be eligible for redundancy coverage, as your job naturally has an end date.

● Government or Industry Actions: Job losses due to government or industry-specific downturns, such as regulatory changes or sector-wide recessions, may not be covered.

● Illness or Disability: Losing your job because you're unable to work due to illness or disability is not covered under redundancy insurance; this would typically fall under a different type of insurance, such as income protection or critical illness cover.

Am I eligible for redundancy insurance?

It’s harder to buy redundancy insurance if you fall into certain categories, such as if you’ve been in your role less than six months, you’re aged over 65, you’re self-employed or you work part time.

The main thing to remember is that unemployment insurance is specifically designed to protect against unexpected redundancy and that insurers will check the circumstances of your redundancy rigorously. For example, if you suspect that redundancy is on the cards and take out a policy as a precaution, there’s a real likelihood your claim will be rejected and no payout made.

As with any insurance policy, it’s essential to read the documents carefully, check for exclusion clauses and note any initial timeframe within which you can’t make a claim. If you need help understanding whether this is the right insurance for you, speak to one of our experts.

How much does redundancy insurance cost?

As with many types of insurance, the longer the benefits are paid out for, the more expensive the premiums

What is the difference between a deferred period and an exclusion period?

Deferred period, also known as waiting period, is the time between losing your job and when you start getting paid by your insurance. The deferred period (which could be weeks or months) will depend on what you choose at the time of purchasing your policy.

A longer deferred period can be beneficial if you are looking for lower monthly insurance costs and you have other benefits (i.e. severance) to tide you over before your redundancy insurance payments kick in.

Exclusion periods, on the other hand, are specific times or reasons when your policy won't pay out at all, for example, if you knew you were going to be made redundant and then quickly took out a policy.

When should I consider buying redundancy insurance?

Redundancy insurance is a proactive approach to ensuring financial stability. Some instances when it may be prudent to consider this cover are:

● Stable employment

● Economic uncertainty

● Before major financial commitments

● Limited savings and high outgoing

What do I need to get a quote?

To get a quote for redundancy insurance, you typically need to provide your personal details as well as detailed information on your employment:

● Employment Details: Current job, industry, and how long you've been with your current employer. The insurer might use this information to assess the risk of redundancy in your sector.

● Income Information: Details about your salary or wages.

● Employment Status: Whether you are employed full-time, part-time, self-employed, or a contractor. Some types of employment may not be eligible or could affect the premium.

● Work History: A brief overview of your work history may be required to assess stability and the likelihood of making a claim.

● Existing Policies: Information on any existing insurance policies you have that might cover redundancy or income protection, to avoid overlap in coverage.

● Desired Coverage: The amount of coverage you're seeking and the preferred waiting (deferred) period before the policy pays out after you're made redundant.

Redundancy Insurance FAQs

What are the pros and cons of taking voluntary redundancy?

There are a number of reasons why you may decide to take voluntary redundancy, such as financial incentives provided by your employer, opportunity to move companies and progress your career, amongst other reasons. However, it’s important to note that if you have redundancy insurance you won't be able to make a claim. So it’s important you weigh the immediate benefits of a voluntary redundancy package against the long-term financial security provided by redundancy insurance.

You can speak to one of our advisors to find out more.

Is there any government help if I'm made redundant?

The UK Government offers a range of support if you're made redundant. For instance, you can access statutory redundancy pay, Jobseeker's Allowance, Universal Credit, as well as council tax reduction and a loan to repay your mortgage interest, However, Government support may not cover your entire salary or living expenses. If you have significant financial commitments, such as a mortgage or personal loans, redundancy insurance can offer specific coverage to ensure these expenses are met.

Do you pay national insurance on redundancy insurance pay?

As your redundancy insurance payments are viewed as a benefit to support you when you lose your job and not as earnings from employment, you do not have to pay National Insurance contributions on the payouts you receive from a redundancy insurance policy.

ActiveQuote is fully authorised and regulated by the Financial Conduct Authority (FCA) to answer questions and offer free advice on redundancy insurance.

^[1] ONS 2017
^[2] CII, Building Resilient Households
^[3] Jobseeker’s Allowance (JSA), GOV.UK, 2017