Redundancy Protection Explained

As an economic slowdown gathers on the horizon and the likes of fuel and food bills creep up, every penny of income suddenly seems a shade more important than it used to when everything at the supermarket was cheap and growth was almost a certainty. With new conditions come new fears of tighter budgets and even the threat of job losses. Although employers in the UK are obliged to provide redundancy payments to staff they lay off, a form of redundancy protection cover can also provide a wide safety net for those worried about getting the unwanted letter saying their services are no longer required.

With some form of compensation after being asked to go a certainty, some might ask why an insurance policy is needed for when income is lost through involuntary unemployment. For starters consider how big a package you would be likely to get if given the unfortunate push. Under current UK statutory rules, those over the age of 41 get one and a half week’s pay for every year of their employment with a firm over that age. From ages 22 to 40 this drops to one week’s pay per year and under 22 it becomes half a week’s pay per year. So, someone aged say, 33, who has worked at a company for three years, will be entitled to just three week’s pay.

Redundancy Protection from Burgesses

Beyond this, the maximum number of years that can be counted towards a statutory redundancy payment is 20. Therefore, someone who has been with a firm for 30 years will get 30 week’s pay – not 45. So, for anyone who has not been with a company for a particularly long period of time, relying on redundancy pay is unlikely to cover the regular outgoings.

What you would have to keep up with of course depends on the individual – but for anyone facing a mortgage, credit card bill, and regular energy payments, a few week’s pay while looking for a new job is barely an option.

Likewise state benefits, which are hardly generous by anyone’s standards. Following a trip to the local job centre and a thick set of forms, the typical person can expect little more than £60 per week – not even enough to cover a modest mortgage for most of us.

Redundancy protection is therefore a suitable option for anyone who is especially concerned about losing their job through no fault of their own. Those who are worried they have not worked long enough in a job to be potentially eligible for a large payout can also opt for the peace of mind safety net.

A major attraction of redundancy protection is the control a policyholder can have over what they get upon being laid off. When taking out a policy, which will require a regular premium, a person can choose how much of their income they would like covered, typically a minimum of around 50 per cent up upwards of a regular income, subject to the type of cover chosen and the provider.

If unlucky enough to be let go, the policyholder will get a tax-free lump sum paid into their account from their insurer towards their usual outgoings while they look for another job. How long a policy pays out for can also be agreed when cover is taken out – from a few weeks up to a few months in some cases. Of course, the cost of a premium is likely to go up depending on how much of your regular income is protected and for how long you choose a policy to pay out for. Whatever level of cover you choose, you will be able to set up interviews and look for new employment without immediately having to worry how bills will be paid after any redundancy money runs out.

Redundancy protection is a type of cover which comes under the umbrella of a range of products known as payment protection insurance. These types of policy are designed to help people who cannot make payments on regular commitments through losing their income through no fault of their own. A general payment protection product will often cover against someone being made redundant, although redundancy protection is available from a number of insurers as a standalone product. This is useful for people who do not want or cannot afford a very broad product covering against the likes of sickness and accident. It also applies to people who are only really concerned about being laid off in the current climate.

Redundancy Protection

With any policy, a number of obvious restrictions apply. A person will not be able to claim if they are simply sacked from a job. Likewise, they will only be able to claim after having taken out a policy for a set period of time, typically around a month or more. A person cannot take out a redundancy policy and make a successful claim a matter of days afterwards. Those who had been given some form of indication they were about to be laid off before taking out a policy will also be unable to claim. Remember to check the conditions of policies closely before signing on the dotted line.

A further word of advice regarding this type of cover. As a payment protection product, redundancy insurance is part of a market facing an investigation by the Competition Commission, the results of which are not expected until 2009. This follows moves by the Financial Services Authority in 2007 to fine a number of big high street names over the mis-selling of payment protection policies to people who did not need them or who did not qualify for them. However, most of the attention since has been on products that are sold to people at ‘point of sale’ by providers offering loans, rather than on standalone specialist policies for situations such as redundancy.

Nonetheless, it can pay to look hard for the right deal. Try not to be tempted to take the first quote given to you by one of your existing insurance providers and make sure you speak to smaller, independent companies which deal with just this type of cover – they can often give redundancy protection and peace of mind at a cheaper premium price.