Head of Content
Former Senior Protection Advisor
Income protection insurance traditionally covers policyholders who need to be absent from work for an extended period due to illness or injury, but will it pay out for redundancy too?
Here you will learn what type of income protection insurance will do just that, how to apply for it, and how our advisers can ensure you get the best policy available.
Does income protection insurance cover redundancy?
Not all income protection polices include redundancy cover as many are strictly limited to extended workplace absences due to illness or injury, but there are specific types of income protection that do include involuntary redundancy and pay out in the event of it.
This type of income protection is called redundancy insurance (or sometimes unemployment insurance) and there are several different variations of it. They are as follows:
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Short term redundancy insurance: Pays out a monthly tax-free lump sum for a limited period to cover a portion of your income after redundancy.
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Accident, sickness and unemployment (ASU) insurance: The most comprehensive type of income protection insurance. Covers against lengthy workplace absences as a result of illness, accidents or involuntary redundancy.
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Mortgage payment protection insurance (MPPI): Will pay out to cover your mortgage payments for a limited period in the event of a redundancy.
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Payment protection insurance (PPI): Similar to MPPI but designed to cover the repayments on debts such as loans and credit cards. These policies were missold on a large scale in the past, but can be viable as long as you take expert advice first.
Unsure which of these policies is the best fit for you? Get in touch to book a free, no-obligation chat with one of our advisers to talk through your options.
How does redundancy insurance work?
Redundancy insurance generally works in the same way as other types of income protection. You pay a monthly premium and the policy will pay out a monthly tax-free lump sum, after a deferred period, if you lose your job through no fault of your own.
Here are the key features of redundancy insurance policies:
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When they pay out: Deferred periods are usually a minimum of 30 days for this type of cover, in which case, payments would begin 30 days after redundancy.
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How much they pay out: Typically 65-70% of your gross monthly salary. Policies that cover a debt, such as MPP, pay out the same percentage for its repayments.
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How it lasts: Typically for a 12-month period but longer and short policies available. Monthly payouts will also stop if you return to work, whichever comes first.
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What it covers against: Losing your job through involuntary redundancy or the company you work for going into administration. Some policies also pay out if you are unable to work for an extended period due to accident or illness.
How much it costs
The amount you will pay for this type of income protection will depend on the premium the insurer sets, and they will calculate this based on a range of factors, namely:
1. How much cover you need: The higher the percentage of your income the policy covers, the higher your premium is likely to be.
2. How long it will last: Although 12 months is the average lifespan for a policy, longer coverage is available but it will come with higher premiums.
3. Deferred period: The longer the deferred period (how long it takes after redundancy for your payments to kick in) you choose, the cheaper your premiums will be.
4. Age: Coverage tends to cost more for older people due to higher risk of redundancy.
If the policy you are applying for includes accident and sickness cover, other factors including your general health and lifestyle, whether you smoke, and whether you work in a high risk industry will also be taken into account when the assuring is assessing you.
Get a bespoke quote online today
Standalone redundancy insurance is far less common than other types of income protection, so if this is what you’re looking for, seeking expert advice first is highly recommended.
Our income protection advisers are whole-of-market and they specialise in arranging redundancy cover. With their help, you can access a wider range of quotes and insurance providers, including exclusive deals that aren’t directly available to the public.
You can access a free, no-obligation chat with one of our income protection insurance advisers to get your bespoke quotes and expert guidance today.
Typical policy exclusions
As is the case with any income protection plan, there are things that redundancy insurance will not pay out for. Your insurance policy will not pay out if you:
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Are sacked from work
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Take voluntary redundancy
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Resign from your post
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Are self-employed, employed part time or on a zero-hour contract
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Took out cover knowing your job was at risk
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Provided false information during the application process
Is redundancy insurance worth it?
Anyone who has ever lost their job through no fault of their own and used a redundancy insurance policy as a safety net will likely tell you it is absolutely worth taking out, but whether it is a good idea for you will depend on your individual circumstances.
It’s important to assess how likely you are to need this type of insurance. Do you have any substantial debts such as a mortgage? How volatile is the business sector you currently work in, and do you already have a plan in place to get by if you lose your job?
These are important questions to consider before taking out a policy, and the table below will help by giving you an idea of the pros and cons of redundancy insurance.
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Advantages |
Disadvantages |
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Can help you avoid financial turmoil if you lose your job |
Limited product choice as not all providers offer standalone redundancy insurance |
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Can be combined with accident and illness protection for more complete cover |
Only available if you’re in full-time employment |
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Payouts are tax free |
Doesn’t pay out if you take voluntary redundancy or quit your job |
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Can pay out more than once if you lose multiple jobs during the term |
Cover is usually short term |
Why choose Teito for your income protection needs?
The income protection insurance advisers on our team are whole-of-market, and experts when it comes to all types of redundancy cover. They can help you find your ideal policy.
Here are just some of the reasons people choose us for their insurance needs:
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We can help you access more insurers and quotes
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Bespoke advice about which policy best suits your needs
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Our service is 5-star rated on leading review websites
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Your first consultation is free
Ready to take advantage of a free, no-obligation with an insurance expert who specialises in short term income protection policies? Get started here.
FAQs
Yes. And this is not to be confused with the deferred period.
The exclusion period is a timeframe that must pass before you can make a claim, in place to prevent people from taking out a policy when they know they are being made redundant.
If you are made redundant during the exclusion period, which can last up to six months, your policy will not pay out.
The deferred period, meanwhile, is how long it takes for your payments to kick in after a policyholder who has made it through the exclusion period has been made redundant.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.