A more uncertain economic climate usually means a greater chance of losing your job through no fault of your own. A downturn usually means more and more newspaper headlines contain the word ‘redundancy’. Losing your job is never a pleasant experience and can lead to serious financial difficulty. However, not all workers are aware of the fact that they are able to protect themselves, to a degree, with an insurance policy which kicks in if they are told their services are no longer required. Redundancy cover will effectively provide someone with a replacement income if they are suddenly made unemployed involuntarily - potentially vital for keeping up with essential commitments while seeking a new job.
Also known as unemployment insurance, this type of policy will provide someone with a cash lump sum paid straight into their bank account for each month they are without work. To qualify a person will need to have been made redundant involuntarily, and will not be able to claim if they have accepted an offer of redundancy. Someone who was given prior indication of their impending redundancy before they took out a policy will also not be able to make a valid claim. Note this type of insurance, as opposed to other policies, will not protect someone if they lose their income through sickness or accident.
The first payment will arrive from the insurer around one month after the successful claim, although some providers will backdate cover to the day the person was first unemployed. How much arrives will differ from one insurer to the next and on what level of policy you have selected. Typically, the insurer will ask you to protect a percentage of your income, although most companies will not guarantee 100 per cent of your wages. The higher amount covered, the higher the premium will be.
The idea of this monthly tax-free sum is to help you get by while you get back on your feet and into work again. It can be used for anything from keeping up with the mortgage, to making loan repayments, to simple things like food and fuel bills. Most companies will not put any kind of restriction on what the money is spent on.
The payments will continue for up to a year, although longer payment periods be available from some providers. Normally a policy will protect someone from 12 to 24 months before it is due for renewal. The main benefit of this is peace of mind if you feel your job may no longer be needed in future, and the potential continuation of your mortgage if you fall on real difficulty - redundancy, in the worst cases, can lead to someone losing their home.
Although most big-name insurance providers will be able to offer someone a policy, not all will provide great value for money. Some more specialist insurers such as independent payment protection provider British Insurance can supply cheaper redundancy cover premiums, meaning peace of mind need not break the bank in times when cash is short.
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