Redundancy insurance

Getting cover for redundancy

Does income protection cover redundancy?

Many people mistakenly believe that getting income protection insurance automatically covers them for involuntary redundancy (i.e. getting laid off from their job through no fault of their own). But unfortunately, it’s not that simple. Income protection is designed to provide you with a percentage of your income for a period if an injury or illness affects your ability to work, but not if you find yourself unexpectedly unemployed.

However, some insurers may choose to include cover for involuntary redundancy on their income protection policies as an optional extra. This addition will also influence the premium you pay.

How can I get covered for redundancy?

To apply for and receive redundancy insurance, you may need to:

• Be of working age
• Be employed
• Work more than 30 hours per week.

Redundancy insurance may also cover people working on a contract basis and pay out if their contract is cut short by no choice of their own. However, be sure to read the relevant Product Disclosure Statement (PDS) to determine if you’re eligible and what you’re covered for.

What restrictions and exclusions should I look for?

While redundancy cover could offer personal security during a difficult time, there are also several restrictions and exclusions you should be aware of when taking out a policy such as a monthly income limit.

Be on the lookout for these restrictions:

• Maximum claim limits. You may be able to receive between $1,000 and $4,000 per month.
• No claim periods. You may have to wait a certain period between when you take out your policy and when you’re able to claim (e.g. six months).
• Waiting periods. This is a separate waiting period to the one above, where you have to be out of work for some time before claiming (e.g. 28 days since your redundancy).
• Age limits. Cover will typically cease after you reach a certain age (e.g. 65 years old).
• Benefit period. Your insurer may only offer benefit payments for a set period of time, like three months.

Furthermore, you may not be able to claim at all if:

• You’re put into involuntary unemployment because of injury or illness (which falls under income protection insurance).
• You resign, abandon your job, retire, choose a voluntary redundancy, or are let go during probation.
• There was information available that indicated your business was about to lay off staff, and this information was available when you purchased your policy.

There may be more reasons why you may not be covered by redundancy insurance. You’ll be able to find the exclusions that apply to your policy listed in the PDS.

Do you need redundancy insurance?

Whether or not this product is suitable for you is a decision only you can make. However, there are a few things you might want to take into account if you’re considering redundancy cover, such as:

Are you nearing retirement?

If you’re close to the retirement age and experience a job loss, there may be alternative options available to you that you might want to consider instead, such as accessing your superannuation (depending on your age and circumstances). If you’re not quite at the retirement age yet, you may be able to contact your super fund to apply for an early release.

Do you have savings or investments?

Depending on your financial situation, you might be able to live on your savings or any passive income from investments while you search for a new job.

What is your profession?

The amount of time it will take you to find a new job will vary between professions, and so the financial impact will also vary. If you work in an industry with high demand for people with your skillset, you may not need redundancy cover.

If you don’t think you need redundancy cover, you might still want to consider an income protection policy, which will pay a percentage of your income if you can’t work due to illness or injury. Learn more about the types of income protection, or start comparing policies now.

Costs and claims

How much does redundancy insurance cost?

Your premiums will be calculated using factors unique to you, such as your age and occupation; therefore, the cost of redundancy insurance will be different for everyone.

Furthermore, redundancy cover is usually an optional extra, so insurers may charge different amounts to add it to your income protection policy. This will, in turn, affect your income protection premium.

How do I claim redundancy insurance?

When making a redundancy insurance claim, you’ll generally need to provide your insurer with a copy of your redundancy letter. However, before you get to that stage, many insurers will require that you:

• Had no prior knowledge of the redundancy.
• Were made redundant involuntarily.
• Were continuously employed for a period (typically six months) before the redundancy.
• Serve a waiting period before making a claim (usually 28 days).

Some insurers may even require you to actively seek new employment (e.g. registering with a recruitment agency) before approving your claim.

Is there a difference between voluntary and compulsory redundancy?

Yes. A voluntary redundancy happens when your employer offers you financial compensation to agree to terminate your employment. A compulsory or involuntary redundancy doesn’t give you that choice, and your employment is terminated regardless of whether you agreed to it.

Meet our life insurance and income protection expert, Steven Spicer

As the Executive General Manager of Health, Life and Energy and our expert in income protection insurance, Steven Spicer knows just how valuable it can be to have a policy that could support you and your family through a difficult time. Steven is passionate about making income protection more accessible to everyday Australians by helping them understand and compare their options.

Steven has 20 years of experience as a people-first business leader, with a focus on creating services that put customers first.

Want to know more about income protection?

• Compare income protection
• Types of financial protection
• Reasons to get income protection
• Income protection application
• Income protection tax