Should I be considering Redundancy Insurance?
If losing your job is something you prefer not to think about, you're not alone! However, having some safeguards in place can make all the difference to your peace of mind, leaving you space to think about things that bring you joy!
Our latest blog provides ideas on how to manage your bills in the short term if you were made redundant and whether redundancy insurance is an ‘add-on’ you should consider. We’ll discuss how redundancy insurance works, what it covers, and key points to keep in mind, helping you decide if it’s the right choice for you.
Job loss has been in the headlines recently, with almost 3500 public sector workers being made redundant, and another 4000 jobs on the line. The tough economy is affecting the private sector too, with plenty of businesses cutting costs. For many of us, it’s enough to cause a wave of panic as we imagine ourselves in this situation. While it's not pleasant to think about losing a job, having a plan in place can certainly help ease some of that stress.
Building a Financial Safety Net
While government support is there for those out of work, with both job seeker allowance and cost of living allowance there to help, it is important to consider if these allowances would be sufficient enough to cover your household’s monthly bills. Keep in mind, job seeker allowance is only available if you don’t have a working partner.
Financial advisors suggest having 3-6 months’ worth of savings to cover expenses in case you lose your job, which is prudent financial risk management. This is a great way to protect yourself, but building up this kind of savings can take time, especially with high mortgage rates and the cost of living.
It might also be helpful to know that if you find yourself in severe financial hardship after losing your job, you may be able to access your KiwiSaver funds as a backup. However, it’s important to be aware that this would have a negative effect on your long-term financial security, impacting on the funds available to you in your retirement.
What is redundancy insurance?
Given that job loss often comes out of the blue, redundancy insurance is one way to protect yourself and those who depend on you against the immediate financial impact of losing your job.
Following an involuntary redundancy, the insurance policy will pay you a monthly income for up to 6 months while you are looking for another job. This payment can be used to cover your bills such as mortgage payments, groceries, utility bills, and any other expenses. It offers some security during a potentially stressful time, allowing you time to apply for and secure new sources of income.
How does it work
Redundancy insurance is usually an optional extra that can be added onto an income protection or mortgage protection policy. If you lose your job due to involuntary redundancy you can make a claim on your redundancy insurance. The process is straightforward, and you can do it yourself or ask your broker for assistance. You’ll need proof of redundancy when you apply.
It’s also good to know that often it doesn’t matter if you have received a redundancy payout from your employer - you can still claim on your insurance.
In most policies, you can choose your level of cover, selecting the percentage of your monthly pre-tax wage you’ll be paid (usually up to 85%), and the length of your stand down period (usually between 2 and 26 weeks). Adjusting the level of cover is one way to reduce the premiums you pay on your policy.
Policies will also have a no-claim period. This means you will need to have been employed for 6 months before you can make a claim on your policy.
What doesn’t it cover?
Redundancy insurance doesn’t cover voluntary redundancy or retirement. It also won’t cover non-performance. This means if you are fired from your job, or you choose to leave, you won’t be able to make a claim on your redundancy insurance.
Things to Keep in Mind
As with any insurance policy, there are a few things to be aware of:
Redundancy insurance is also not available to people in seasonal, part-time, contract or self employed work.
Not all occupations, industries, or employers are eligible for redundancy insurance
Public rumours of downsizing in your organisation or industry could prevent you from being able to buy insurance
Any verbal or written communication about job security in 6 months prior to taking out the policy could void it.
You can usually can make 2 claims for redundancy in your working career
The maximum age for redundancy insurance is usually 55.
Redundancy insurance can be a valuable safety net in uncertain economic times, offering peace of mind and financial stability if you unexpectedly lose your job. It provides short-term income support, helping you cover essential expenses while you search for new employment. If you’d like to learn more about redundancy insurance to decide if it is right for you, our advisors are very happy to discuss the range of policies available. Get in touch today to find out more.