Some people might question the point of a redundancy cover plan when government rules mean people are entitled to redundancy packages and job seeker’s benefits. But the problem with both is that they are very limited and in many cases will not meet the typical outlays of many British households which may face rents costs, mortgage payments, or regular bills or other debts which involve a significant financial commitment.
While some people’s jobs may seem secure one minute, a sudden change in a company’s outlook may mean they are looking to cut staff quickly and could make decisions to cut jobs quickly. In such circumstances how much someone is legally entitled to depends on their age and how long they have worked for the company for. For example, younger workers who have been with a firm for a short amount of time can only get a very limited sum which may only stretch the equivalent of a few days’ worth of pay.
Then there is the benefit system, which is unsurprisingly not geared towards replacing someone’s income to the extent they can rely on it to meet all their regular costs. In many cases job seeker’s allowance stretches to less than £100 a week, barely enough for somebody to even meet the most basic of expenses, let alone cover things like mortgage repayments and other costs.
Struggling without an income
This means many people can expect the basic systems to provide them with very little, and unless they get a job almost immediately after being let go, they could find themselves in hardship and struggling with even some of the most straightforward costs.
Redundancy cover, which is available from most of the insurance companies you have heard of, and some are the ones you haven’t, would kick in and pay tax-free lump sums into your account each month until you are working again, or until the policy period expires. In exchange you simply pay a regular premium to the insurance company.
How much you would get after a claim can often be decided at the start of the redundancy cover policy, so you can simply name an amount you would expect per month after a claim. The higher amount you want, the higher your premium will be.
So you might be able to protect £600 pounds, for example, for a reasonable premium, and in exchange an insurance company would simply pay you this amount per month should you ever use the policy successfully. However, there are limits, and an insurance company will not insure you passed a set amount. Because of this you may not be able to protect all of your current income, but at least a decent slice of it so you can get reasonable support with some of your essential commitments.
After all, a policy like this is not designed to replace your job, but to support you until you are working again. Its main aim is to make the process of being made redundant less stressful, as you will be getting a regular form of financial benefit until you are working again or until the payout period runs out. Most deals will continue to provide you with cash for quite some time, often 12 to 24 months, with deals with longer payout periods often costing more.
It should be noted that your policy will be invalid if you arranged it after having been given some form of notification that you were going to be made redundant. For example, an e-mail, memo or phone call may be enough to mean that a policy you buy protecting against redundancy is nullified. Therefore it is important that you have not been given any indication that you’re going to be let go before you buy a policy. Many deals will also involve an initial period during which you cannot claim after you have sealed the cover. So you might not be able to take out the deal and then claim on it four weeks later, for example.
Benefit payouts
Normally an insurance company will pay the first amount between 30 and 90 days after your initial claim, although you can often specify this waiting period yourself, and the minimum will often be 30 days. Some firms actually backdate their payments to the actual day you lost your income, so this might be something to check in the terms and conditions.
This kind of protection is different to other personal insurance plans which are also part of a sector known as the payment protection insurance (PPI) market. Other deals which share similar features but which cater for different eventualities include loan payment protection insurance, mortgage payment protection insurance (MPPI), and income payment protection insurance . These kinds of deals are designed to either provide you support with a specific loan, or provide a general replacement for your income if you also lose your job due to accident and injury or illness.
While a basic redundancy cover deal will not payout if you lose your income over time due to falling ill, perhaps with a serious illness, for example, you can often ask your insurance company about this as they may add on this eventuality for a little extra premium.
Why you need to consider unemployment protection
Redundancy cover has proved a valuable safety net for many people who have been let go by their employer unexpectedly. Over time if people fall behind with commitments such as loans they can end up with a poor credit rating, while those with mortgage commitments can face repossession if they don’t keep up. A redundancy insurance plan can help you avoid all of these eventualities and perhaps also ensure somebody spends less time worrying about where the next penny is coming from and more time ensuring they have a smooth route back into a new job.
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