Does Income Protection Insurance Cover Redundant Workers?

Information verified correct on October 25th, 2016

Income protection cover can be provided to workers but only if it's from a general insurer

Income protection insurance can cover Australian workers for redundancy if the policy comes from a general insurer. However, for income protection policies that come from life insurers, there is no redundancy cover.

So how can typical income protection policies help out redundant workers?

There is still some support on income protection policies from life insurance companies in the event the worker is made redundant. These benefits include:

  • Involuntary Unemployment Waiver: Premiums waived while policy-holder is involuntarily unemployed. Usually only available for a period of 6 months and the insured will need to provide evidence that they are actively seeking employment.
  • Unemployment Benefit: Provider will pay the minimum repayment on the insured's mortgage while they are involuntarily unemployed. This payment will usually only be provided for a certain number of months and in most cases is only available if the mortgage was taken out with the same provider.

Some general insurance companies have income protection policies that cover redundancy

That said, there are some general insurers that are not beginning to offer benefits to policyholder who experience job loss. This guide will discuss the pros and cons of these policies and what applicants need to be aware of.

Compare redundancy cover with an adviser is partnering with a team of consultants to handle its enquiry referrals and they do not currently provide income protection policies that offer cover for redundancy.
You may still like to receive a quote for income protection insurance WITHOUT redundancy cover.

So does income protection cover loss of job?

While it is illegal for Australian life insurance companies to provide redundancy cover to workers, there are some general insurance providers that will offer a benefit payment in the event that the worker is made redundant. There are a number of products from general insurers that will provide a maximum benefit amount for a specified period if it is found that the worker was made redundant for reasons other not related to their actual performance.

Anyone considering taking out this type of cover must be fully aware of the terms and conditions of the policy. Unemployment will often come with many restrictions around the events that a claim can be made for a benefit and the requirements of the policyholder as they are unemployment during the benefit period i.e. most policies will not allow the policyholder to be receiving any stream of income whatsoever while on claim.

So what exactly does income protection cover in Australia?

Anyone who is considering taking out income protection insurance cover in Australia needs to be aware of what it does and does not cover, as otherwise you could be under a false impression when you make your purchase of cover. This is why it is important to check any income protection plan carefully before you make any commitment. If you have read about income protection cover online and have read that it covers you in the case of redundancy then the chances are that you have been reading about income protection cover for those living and working overseas rather than those in Australia.

Standard income protection cover in Australia covers you if you are unable to work and earn a living as the result of a debilitating injury or illness. You will then be able to claim a portion of your income, which is arranged when you take out the plan, for a specified period of time, which is also arranged when you take out the plan. If you find yourself out of a job due to redundancy you will not be covered by income protection plans in Australia. The things that you will not be covered for with an Australian income protection plan are:

  • If you lose your job through redundancy
  • If you lose your job because you are fired
  • If you are unable to work as a result of having to care for somebody
  • If you are unable to work for any other reason other than through an injury or illness

Generally, loss of a job through redundancy is covered by some mortgage protection policies. There are also some income protection policies that are now starting to introduce redundancy cover but only if you also have a mortgage with the same provider.

Is it worth taking out income protection cover if it does not cover redundancy?

Some people may wonder whether it is even worth taking out income protection cover if it does not cover against redundancy. The answer to this is a resounding yes, as, although it may not cover you if you are made redundant, it does cover you if you are unable to work due to sickness and injury. If you are made redundant this does not mean that you cannot work, and although it may not be easy you can look for and hopefully find another job relatively quickly. If, on the other hand, you suffer a serious illness or injury that stops you from being able to work altogether, even if just for a period of time, you would have no other way of earning money, and this is where an income protection plan can prove invaluable.

It is important to compare income protection plans before you make any commitment, as you need to ensure that you choose the right plan, provider and level of coverage. Income protection plans can vary in terms of the level of coverage they offer, the cost of the cover, and the benefit terms, so taking the time to compare them means that you can boost your chances of making the right choice.

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