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Unemployment protection insurance

We’re sorry, but we can’t get quotes for standalone policies for unemployment insurance. Lots of insurers aren’t providing redundancy cover anymore. But you can still compare accident, sickness and unemployment as a combined cover [1]

What is redundancy insurance?

Redundancy insurance is a type of short-term income protection cover. It’s also sometimes called unemployment protection insurance.

If you’re made redundant it helps to replace your wage with a tax-free monthly payment for up to 12 months.

Redundancy insurance can help to provide peace of mind when you have monthly expenses like mortgage repayments and bills to pay.

unemployment protection

Key points

  • If you’re made redundant unexpectedly this cover can provide tax-free monthly payouts for up to 12 months
  • You can insure up to 70% of your salary but you’ll need to be in full-time employment to take out a policy
  • Your policy won’t be valid if you take out cover when you know you’re at risk of redundancy
  • Standalone redundancy policies aren’t widely available, but you can still buy combined accident, sickness and unemployment cover

Who needs it?

If you’re in permanent employment and have a family or financial responsibilities, redundancy insurance might be worth considering.

It could be particularly useful if you’re in a job where the chance of redundancy is medium to high, but losing your job is still likely to be three to six months away.

But you’re unlikely to be eligible if you work part-time, have been in your current role less than six months, are self-employed or work on a temporary contract.

How does it work?

You’ll pay monthly premiums and if you’re made redundant involuntarily during this time and make a successful claim, your redundancy insurance policy will pay out.

Most policies provide financial cover for up to 12 months and can pay 50-70% of your annual income before tax.

But for higher salaries, insurers will usually cap the total payout amount.

To make a claim, you’ll need to register as unemployed at the job centre and provide your insurer with the relevant paperwork.

It can take around 30 days to receive your first tax-free payment and you’ll continue to receive payments until you find another role or until the policy term ends.

What types of unemployment cover are there?

When it comes to taking out financial protection for unemployment, there are a few options you can choose from:

  1. Mortgage payment protection insurance (MPPI)

    Often taken out with a mortgage, this type of cover can help cover your mortgage repayments if you lose your job

  2. Accident, sickness and unemployment insurance (ASU)

    This provides more comprehensive protection against situations that might prevent you from working

  3. Payment protection insurance (PPI)

    This type of protection will cover monthly payments on a loan or credit card if you find yourself unable to work

  4. Unemployment insurance

    This provides standalone redundancy cover, but as these policies are increasingly hard to find a combined ASU policy may be a good alternative

What does unemployment insurance cover?

This cover is designed to protect a proportion of your monthly salary if you lose your job unexpectedly.

It can cover you being made redundant as well as your company going into administration.

Paying out a tax-free monthly sum for an agreed period - typically 12, 18 or 24 months - it can provide short-term financial protection while you look for a new job.

  • Advantages

    • Unemployment insurance can give you peace of mind and breathing space while you’re looking for a new role
    • You can receive up to 70% of your monthly salary tax-free
    • You’ll keep receiving payments until you’re back in work or until your policy term ends
    • As long as you pay your premiums there’s no limit to the number of claims you can make - so if you’re unemployed again in the future you’ll still be protected
  • Disadvantages

    • It won’t pay out if you’ve taken voluntary redundancy, resign from your job or if you’re dismissed
    • If you take out cover when you know you’re going to be made redundant or you think it’s likely, you won’t be able to make a claim
    • You’ll usually only receive payments for up to 12 months (it may be longer depending on the policy), after that you’ll need to find another way to cover your bills and outgoings if you haven’t found a new job
    • If you’re made redundant during the exclusion period, you won’t be able to make a claim and your policy will be voided
    • It’s unlikely that you’ll be able to take out redundancy cover if you’re self-employed or work part-time

Can I get redundancy insurance for other things as well as unemployment?

Yes, you can also take out financial protection for other situations that might prevent you from working - for example, a serious illness or injury.

ASU insurance provides cover for these as well as giving you protection for redundancy.

How much is redundancy insurance?

This will vary between providers and will also depend on your situation and the options you choose.

For example, the price will depend on:

  1. Your age

    The older you are the higher your premiums. You’re more likely to be ill and off work as you age, so with ASU policies this increases the cost

  2. The level of cover

    The percentage of salary you choose to insure and whether you’re having a combined ASU policy will affect the cost

  3. The benefit period

    You can choose how long you’ll receive payments for - usually 12, 18 or 24 months - the longer this period is the more expensive your cover will be

  4. The deferred period

    A pre-agreed waiting phase that states how soon you’ll receive payments after you’re made redundant. A longer deferred period reduces your premiums

What is the exclusion period on unemployment insurance?

The exclusion period will be stated on your policy and it’s an agreed initial timeframe during which you can’t make a claim.

It could last up to six months from the day your cover starts.

If you’re made redundant during the exclusion period you won’t be eligible for any payouts.

This is designed to stop people taking out unemployment insurance when they know they’re going to be made redundant, or if they’ve been made aware that redundancy is likely.

Is the deferred period different to an exclusion period?

Yes, the deferred period is how long you’re prepared to wait between the first day of your redundancy to when your payments will start.

You agree to this fixed period of time when you take out your policy.

You should consider any savings you have and what your redundancy payout might be to help you work out when you’d need the payments to start.

The longer the deferred period is the lower your monthly premiums will usually be.

What isn’t covered by redundancy insurance?

You can only claim on your redundancy insurance policy if you’ve been made redundant and have lost your job unexpectedly.

You won’t be covered if:

  • You resign from your job
  • You were sacked due to misconduct
  • You’re on a temporary contract, work part-time or are self-employed
  • You take voluntary redundancy
  • You took out redundancy insurance when you knew you’d be losing your job

Do I need life insurance too?

Redundancy insurance is useful for unexpected job loss. But you’ll need life insurance if you’ve got family or dependents that rely on your income and you’d like them to have financial support when you die.

If you pass away during the policy term it can provide a tax-free lump sum they can use to help cover things like funeral expenses, mortgage repayments, and general living costs.

Can you get unemployment protection if you’re unemployed?

You’ll usually only be able to take out redundancy insurance if you’re in full-time employment.

And most insurers will require you to have been in your job for at least six months before you can buy a policy.

Can I get it if I’m self-employed?

Redundancy insurance is generally only available if you’re in full-time employment.

There are specialist providers who offer insurance options if you’re self-employed, although you may need to prove your income.

If you’re self-employed you can still take out income protection for injury and illness to protect you against certain situations that might prevent you from working.

Why can’t I just rely on state benefits?

Jobseeker’s Allowance pays up to just under £75 a week, so it’s unlikely to cover your monthly outgoings.

Taking out unemployment protection can help to pay the bills and make up the difference if you find yourself unexpectedly out of work.

How soon will I get my unemployment insurance payouts?

This will depend on the deferred period you agreed to when you took out your policy - this is usually up to six months from your first day of redundancy.

It’s possible to buy unemployment insurance policies that will pay out immediately, although you’ll usually need to pay higher monthly premiums.

Do I get a payout at the end of the policy if I don’t claim?

No, if you don’t make a claim for redundancy by the end of your policy you won’t receive any payout.

Is it possible to take out joint cover?

No, because each policy is tailored to the individual, you’ll need to take out your own cover.

What are the alternatives?

While it’s not easy to find redundancy insurance as a standalone policy, you can still take out combined ASU cover.

This can provide you with financial protection by insuring a percentage of your salary.

So, whether you lose your job or a serious illness prevents you from working, you can still receive tax-free payouts to help you meet your financial commitments

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