The credit crunch has brought into sharp focus the increasing need for insurance against redundancy. However the recent Payment Protection Insurance mis-selling scandal has also shaken confidence in taking out redundancy cover.
Redundancy Income Protection Insurance policies have been around for many years, although mainly confined to those taking out a mortgage. They are commonly known as ASU policies – covering Accident, Sickness and Unemployment.
But not everyone has a mortgage. And many ASU policies require you to be taking out a mortgage or rearranging one to qualify for cover.
Stand-alone unemployment income protection insurance is now available for those who simply want to protect their income, or at least a part of it, against the risk of redundancy. There are limits as too how much you can insure – there has to be some incentive to find another job – and there are usually waiting periods before a claim can be made. This is to stop someone only taking cover when they suspect redundancy may be looming – insurers need to protect themselves against early claims.
The cost of stand-alone unemployment income protection insurance depends on a number of factors:
- Your age: Some plans charge more based on age.
- How much cover you need for redundancy income protection insurance: Plans are usually priced at a rate per £100 of monthly benefit.
- How long you want benefits to be paid: This is usually restricted to a maximum of 12 or 24 months.
- How long you could wait for a claim being paid by your redundancy income protection insurance plan: 30 days out of work is usually the minimum before you can claim, but in some cases the benefit can be backdated to the first day out of work. Other waiting periods are 30, 60 or up to 180 days.
- Whether you take an initial ‘free’ period of cover – e.g. 3 months. You will however pay a higher premium after the free period ends.
- Occupation: some plans charge more for occupations they consider more at risk.
The benefits will only start from the day you are officially redundant, not the day you take garden leave or holidays owed. For claims to continue you must not do any paid work of any kind – even for a day, and you must be registered at a Jobcentre and actively be looking for work.
An important warning: read the small print of your unemployment income protection insurance policy summary. Many claims can be declined on technicalities and you should fully understand the restrictions and clauses before taking the contract out.