Index | Liability Insurance | Redundancy Insurance
The present economic situation tends to turn many optimistic estimates into vain hopes. Very few jobs and positions are now free from the risk of compulsory redundancy, and very few lucky of us are free from worries about the steady income.
Redundancy Insurance, also called Unemployment Insurance or Redundancy Cover, is the insurance which guarantees a replacement of some of the income the policy holder loses due to involuntary redundancy. If you don't have your regular paycheque from your employer any more, the Redundancy Insurance will provide a straightforward way of securing an income sufficient to pay the bulk of the household bills and expenses. In other words, the insurance benefits will help you to get through the period between losing your job and finding alternative employment.
There are two types of Redundancy Insurance helping you to meet your financial commitments: Salary Protection Insurance and Mortgage Protection Insurance, protecting either your salary or mortgage repayments, correspondingly.
In case you choose Mortgage Protection Redundancy cover, you protect your mortgage repayments, i.e. your monthly payments you make to your lender for the mortgage on your residential property. With Salary Protection Insurance, your other living expenses will be covered too, but the premium will be higher due to a higher payout you receive.
Being a part of the Payment Protection Insurance (PPI), Redundancy Insurance is often attached to loans and mortgages. In case the policy is attached, the payment will go towards the specified debt, and if you have a standalone policy you can use the funds as you choose.
It may be difficult to find a policy that covers only redundancy. More often than not, the policy tends to combine accident, sickness and unemployment into one plan.
What portion of the earned income is covered by this insurance much depends on the individual policy holder. Providers have maximum benefit levels and they won't replace your entire income. The terms and conditions of various policies will differ, and you will have to choose a benefit level to meet your needs. In most cases you will receive up to 50% of regularly earned income. All Redundancy Insurance policy payments are tax free.
The maximum period of time for which the monthly benefits will be payable during the policy holder's involuntary unemployment will also vary. The typical time limit, which is supposed to give a person enough time to find an alternative employment, is 12 months. Some more expensive policies will offer payouts for up to 24 months period. In order for your claim to continue to be paid each month, you must submit a "continuation claim form" as well as provide proof of your ongoing unemployment. After a year period has expired, your claim will be closed, no matter whether you have found a new position or not. Mind that in case you go back to work within the maximum payment period, the benefit payments will stop.
It is essential to be aware of the date when you would start to receive Redundancy Insurance benefits if you had to make a claim. Typically the policy holder will start receiving benefits anywhere between 30-90 days after he/she is made unemployed.
Some policies will provide a benefit, which is called back to day one cover. It ensures the benefits paid to the first day of the claim after the 30 day waiting period.
The cost of this policy type can vary according to difference in policy features and benefits. Redundancy Insurance obtained from credit providers is likely to be more expensive than alternatives from independent providers which are not sold as part of a loan or credit agreement.
In order to qualify for a policy you must have been employed for a minimum period of time specified by the provider. There can be some other eligibility criteria, concerning your age, type of employment, the minimum number of hours you need to be employed weekly, etc.
Surely, insurance companies do not accept all Redundancy Insurance claims they receive and use a number of tricks and loopholes to help keep their profits high:
* Your claim won't be accepted if you don't provide proof that you are currently unemployed and are actively seeking re-employment. This proof should include such evidence as registration with the employment agency, job-application and rejection letters, interview dates, etc.
* Your claim will be rejected if it is filed in the early days of a policy. All policies include an "initial unemployment exclusion clause", which prevents claims from being made until a certain period has elapsed. Typically, this exclusion could last 60 to 120 days from purchasing a policy. Also, to make a claim, you must be continuously in employment for six months before you are made redundant.
* You won't be covered in case at the policy start date you knew that redundancy was coming or you volunteered for a redundancy package. Most policies will include a special "reasonably aware" exclusion in order to prevent you from taking out a policy only after learning that your employer intends to make redundancies. You can protect yourself against redundancy only if you take out a policy while you are still employed and the redundancy is not impending.
* Mind that many policies cover redundancy, rather than unemployment. It means that if you are dismissed, or resign, or leave a job due to some other reason than compulsory redundancy, you won't be covered.
* There is a "waiting" or "excess" period in many policies, during which you don't qualify for any payout. For instance, if you don't work for 80 days, and your policy has a 60-day excess period, in this case you will receive only 20 days' benefit.
* Your insurer will study your employment contract and history to determine whether unemployment can be called a "regular and recurrent" feature of your occupation. Your claim is likely to be rejected if you are not in a permanent position, and unemployment is rather a routine part of your working life.
It will be difficult for you to prove that your employment unexpectedly came to an end if you are a seasonal worker, or work on a short-term, specific or fixed-term contract.
* Self-employed people and those having their own company will also have difficulties making a claim. It may require closing down their business due to bankruptcy before their claim will be considered.
As the redundancy rate is rising nowadays, the problem of protecting yourself against unemployment becomes more and more critical. Redundancy Insurance can provide you with the peace of mind and a valuable safety-net if you lose your job. However, it is vital to carefully evaluate the policy terms and be aware of all the Redundancy Insurance pitfalls. Protecting yourself by building up a savings cushion for a few months unemployment may be a smart alternative to buying pricey insurance. Remember that your strength of mind, positive attitude and your savings are the things to help you get through the difficult period.