If you are a full time worker, then you should consider the benefits of a redundancy cover plan. Every one of us is vulnerable to suddenly being made involuntarily redundant, even when the country isn’t in economic turmoil. The days of having ‘a job for life’ are over. That is why thinking about the effects of unexpectedly being made unemployed and what you can do to minimise the possible financial impact of it is no bad thing.

So, how can you protect yourself financially against involuntary unemployment?

The good news is that peace of mind can be bought when you take out an unemployment protection plan. Part of the payment protection insurance - PPI – family, redundancy cover provides a tax free monthly amount that can be used to help you manage financially in the event of involuntary unemployment.

Once you are made involuntarily unemployed, the policy will begin to pay out after a set period of time. This does vary among the different redundancy protection providers but is typically anywhere from 30 to 90 days after you are made unemployed.

Many people will opt for the smaller waiting period so as to ensure that their debt doesn’t mount up, so do consider this when choosing your unemployment cover.

How long will the cover pay out for?

Again, this differs depending on who you buy your protection from, but most policies will pay out for up to 12 months, or until you get back to work – whichever event is sooner. This means that you will have the peace of mind that you are still receiving an income even when yours is lost, leaving you free to focus on finding new employment rather than how you are going to pay the mounting bills.
There are some policies that pay out for up to 24 months, but typically come with a more expensive premium.

How much income will you receive?

A typical redundancy insurance plan will allow you to insure up to 50% of your monthly gross earned income, or up to £1,500 – whichever amount is the lesser. Compared to what you may receive from the State (as not everyone is eligible for financial assistance from the Government if they are made unemployed), then you can appreciate just how valuable the benefits from such cover can be. But more about State assistance further on.

Different names for the protection

As mentioned before, your unemployment protection policy is part of the payment protection insurance family. Under this umbrella of products are three types of protection, each with a slightly different purpose, though their overall aim is the same – to provide you with an income.

You can choose to take out a debt specific form of redundancy cover such as mortgage payment protection insurance or loan payment protection insurance. Or you can opt for a policy that pays out an income in general, called income payment protection insurance.

The type of plan you choose will be based on your own circumstances. For example, if meeting your mortgage repayments in the event of involuntary unemployment is your main concern, then mortgage payment protection insurance (MPPI) could be best for you.

The monthly sum received from this plan will go towards your mortgage repayments as well as associated household costs such as home insurance and life cover. This means that your home will be protected from all aspects.

However, if you have loans or credit card commitments, then you may wish to consider taking out loan payment protection insurance. The income from the policy will help you maintain your monthly credit commitments, which can help stop debt from building up.

Alternatively, you may wish to choose how you spend the money yourself. If you want to have an income that you could use as you wanted, then you can take out redundancy insurance as an income payment protection insurance plan. This policy is non-debt specific which means that you can spend the income however you wish. For example, you may use it for your utility bills, your rent and your grocery bills, fuel costs or even a new suit for that all important job interview! The choice is yours.

This means that you can tailor your redundancy insurance to best meet your financial needs.

And even better, you can also add on extra protection to your unemployment cover with protection against being unable to work due to accident or sickness. (That is why you may also have heard the term ASU – or accident, sickness and unemployment insurance – to describe protection insurance).

This means that you can get comprehensive cover against life’s unexpected difficulties. It normally only costs a little extra to get this valuable cover, so you don’t have to worry about breaking the bank.

Why you should consider a policy

As we mentioned before, getting help from the State can be hard. For example, if you were unemployed and had mortgage commitments to meet, even if they were to supply you with an income towards your mortgage, it will only cover the interest part of the repayments. You will also have to be eligible to claim.

Certainly, any State benefits you might receive could fall short of the income you are used to fetching home when working.

And if you relied on yourself, savings could also be a letdown as they might get depleted before you find new work.

Getting a good deal

So, how can you protect yourself against redundancy, without having to put a strain on your budget? Unemployment cover can be affordable if you know where to buy it from. Historically, cover is cheaper when taken with an independent payment protection specialist compared with the high street banks and lenders. From a standalone provider, cover can cost from just a few pounds every month for every £100 worth of protection required.

With a redundancy insurance policy behind you, you would know how much you have coming into the home and how long the payments would last. This gives you financial breathing space at an already difficult time.

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• A mortgage protection plan has to be given serious consideration
• Mortgage protection insurance is a more reliable back up plan than relying on State help
• Does you workplace offer long term sick pay? If not consider a mortgage protection plan
• Consider buying a mortgage insurance plan independently