When economies start to slow down and attract some negative headlines, the issue of job losses normally comes up. Being made redundant is not a pleasant experience and can lead to significant stress while someone tries to find a new job. During this period there is always the question of how bills and even mortgage repayments are going to be paid. This leads some workers to take out redundancy cover as a precaution.
The UK does have a statutory redundancy pay rule in place, but how much someone gets when they are laid off will vary depending on how old they are and how long they have been with a company. Someone who is around 18 years of age may even only get a couple of weeks’ worth of wages. When it comes to jobseekers allowance, the State is not exactly generous and in some cases weekly payments can barely be enough to meet things like grocery costs. Redundancy cover is designed to fill the remaining gap until someone gets back into work.
This type of policy is also a form of cover which falls under the umbrella of the payment protection insurance sector. This area features a number of products which are designed to protect someone’s varying financial commitments if they suddenly lose their salary through becoming ill, being made redundant, or suffering an accident. Redundancy insurance will only cover someone if they are made involuntarily redundant, and will not apply if they lose their salary for any other reason.
This means this type of cover can be of particular use to someone who is concerned an employer may hand them their notice in future. However, it is important to note that a policy will be invalid if a person knew they were going to made redundant before they took out the insurance. They must have no prior knowledge in order to be able to claim successfully.
A policyholder will need to decide what percentage of their income they would like to have protected. Should they need to claim, this percentage will then be paid into their bank account directly by their insurer for a set period, usually up to a maximum of approximately 12 months depending on the provider. The idea is not to fully replace someone’s income but merely to give them a helping hand while they carry on searching for a new job. The payment, which arrives tax-free each month, can be spent on anything from keeping up with loan and mortgage commitments to household bills, groceries and even a new tie for a job interview. There is usually no stipulation on exactly what the policyholder spends it on.
Most high street insurance firms will offer a form of redundancy cover but at varying prices. It does not always make sense to merely take out a policy with your existing car insurance provider, for example. Other companies might be able to provide you with just as an effective policy for less. A good example of a more independent standalone provider is specialist payment protection provider British Insurance.
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