Can income protection insurance cover redundancy?
Most Income Protection Policies in Australia do not offer cover for involuntary redundancy. However, the increasing competition among many of Australia’s insurance brands has lead to the arrival of some products that offer a limited range of protection against:
- Loss of job
This usually comes as an additional option, and will cover you in these situations for a brief period e.g. 3 months.
Comparison of policies that offer involuntary redundancy cover
|Provider||Standard?||Max percentage of income covered||Max amount of income covered||How long will cover last?||Minimum hours you'll need be working to be eligible|
|AAMI||75%||$4,000||Up to 3 months||20|
|ANZ||50%||$3,000||Up to 3 months||20|
|Insuranceline||85%||$3,000||Up to 3 months||30|
|NIB||85%||$3,000||Up to 3 months||30|
|NRMA||85%||$3,000||Up to 3 months||30|
|Suncorp||75%||$4,000||Up to 3 months||20|
|Virgin||85%||$3,000||Up to 3 months||30|
Conditions for eligibility apply. Always check the Product Disclosure Statement (PDS) to see if you are covered.
Typical conditions when it comes to involuntary redundancy cover and income protection.
Am I eligible for redundancy cover?
Generally, in order to receive redundancy cover you must:
- Be unemployed for a waiting period for 30 days from when you are made redundant.
- You must be unemployed at the end of the waiting period.
- You must register with Centrelink or a recruitment agency, actively seeking work.
When am I not covered
Typically, you won't be covered if the redundancy occurs:
- 6 months before your policy starts your employer made you aware of redundancy occurring
- Within 6 months after your policy starts
- Voluntarily or if you're self employed
- Due to illness or injury
- Living outside of Australia
- After a public announcement of reduction in staff numbers through redundancy
- Due to the seasonal, casual or temporary nature of your work
- Due to unlawful acts
- Misconduct or suspensions
Note: This list is not indicative of all policies on the market. Always check the wording of your product disclosure statement (PDS).
Some brands offer 'relief benefits' for redundancy. This can provide you cover during redundancy if you also have a home loan with the brand. This benefit usually helps you with the minimum payments on the home loan.
|Policyholder of:||Home loan from:||Monthly involuntary benefit|
Conditions apply, make sure you read the product disclosure statement (PDS) before applying. Information last checked as correct in June 2017 and is subject to change at anytime.
Only General Insurance companies are able to offer redundancy cover on income protection policies in Australia. Some general insurance income protection policies will now provide a maximum monthly benefit payment for a maximum period of time while the insured is unemployed.
General insurance (offered by general insurers) typically provide financial property against loss or damage to your assets and property. Life insurance on the other hand is designed to provide financial protection from life hazards such as death, illness and accidents. Some examples of general insurance can include:
- Home and contents insurance
- Personal liability
- Loss of money insurance
As redundancy is not a result of a 'hazard', general insurance policies will typically cover loss of job/redundancy.
There are a number of general insurance companies within Australia that have just introduced income cover with a feature of involuntary redundancy cover for a period of up to 3 months, which also serves as a protection plan to cover your bills for a specified period.
Optional redundancy cover from a general insurer sounds great in theory, and there are certainly plenty of situations where it can offer crucial financial support for Australian families. However, be warned that there are a wide range of conditions and exclusions that apply to this type of cover, so it might not be as easy to receive a benefit payment as you may hope. Some of these conditions include:
- The policy must have already been in force for a defined period, for example six months.
- You must be able to prove that the redundancy was in no way related to your own performance.
- You must be continuously employed for a defined period prior to lodging a claim.
- You will need to sit out a waiting period after being made redundant before you can start receiving a benefit.
- You cannot receive income from any other source while you are being paid a benefit, including from part-time or casual work.
- There are limits on the benefit payment and benefit period. Most policies limit cover to about $3,000 each month for up to three months.
Make sure you read the product disclosure statement carefully to work out when a benefit will be paid and whether this sort of cover is right for you.
The majority of income cover plans in Australia will not provide a benefit to the policyholder in the event that they are made redundant and are unable to work. Most policies will provide benefit payments that focus on the insured person's condition and to assist them returning to work from an injury or an illness...not to support them while they search for a position.
An income protection policy will provide an ongoing benefit of 75% of the persons regular income. Additional benefits can be provided to assist with the persons rehabilitation or to cover their nursing expenses. Insurance providers give these benefits with the assumption that the policyholder will be able to make a recovery and return to a paid position in the company. This may not be able to be guaranteed with the sudden loss of a job.
While traditional policies from life insurers will not provide policyholders with a benefit payout if they are to lose their job, their are certain features available on some policies to make this time easier so they do not default on their premium payments. These features include:
- Involuntary Unemployment Waiver of Premium: This feature will ensure that premiums payable on the insureds income protection policy will be waived for a specified period if they are involuntarily unemployed. In order for this to apply, the policyholder will have to show that they are actively seeking a new position. This waiver is usually only available for a certain number of months.
- Unemployment Benefit: A number of policies available from Australia’s major banks will cover the policyholders minimum mortgage repayments and credit card repayments for a set period of time if the policyholders mortgage was taken out with the same financial institution.
- Peace of mind. Redundancy cover ensures that if the worst happens and you lose your job through no fault of your own, you will receive financial support.
- No money worries. Instead of worrying about paying the bills, redundancy cover allows you to put all your efforts into finding a new job.
- Other benefits. You can also enjoy the security offered by income protection insurance, which provides cover if injury or illness prevent you from working.
The not so good
- Confusing. Many people assume that all income protection policies automatically include redundancy cover, but this is not the case.
- Extra cost. Redundancy cover is only offered as an extra-cost option, and only on some policies. You need to be sure that it offers value for money before adding it to your policy.
- Conditions apply. From the details surrounding your redundancy to the time for which you can receive a benefit, there are several conditions you must satisfy in order to qualify for redundancy cover.
As mentioned above, redundancy cover is only available on income protection policies offered by general insurers, not life insurance companies. Before adding such an option to your policy, however, you’ll need to consider the cover available, the benefit conditions, and whether or not the redundancy cover represents good value for money. Some of the income protection policies that offer optional redundancy cover include:
Virgin Money Income Protection provides a benefit of up to 85% of the policyholders income to a maximum of $10,000 per month. Policyholders must be working for more than 20 hours per week to be eligible.
The unemployment cover option will provide a monthly benefit to a maximum of $3,000 per month for a period of 3 months if the policyholder has been made redundant. The benefit is also available to self-employed business owners if their business has been declared insolvent. Benefit Requirements:
- Policyholder must work for more than 30 hours a week.
- Policyholder must be between 18-60 years of age.
- Cover may continue until after the anniversary after the policyholders 65th birthday.
- Policy must be in force for a period of 6 months.
- Benefit will be paid if made redundant and out of work for longer than 28 days.
- Policyholder will need to be continuously employed for 6 months prior to making claim.
- Reason for unemployment can not include sickness or injury, unsatisfactory job performance, loss of employment qualification or licence, worker was employed in seasonal work or their contract has finished or been terminated.
NRMA Income Protection Insurance replaces up to 85 per cent of your regular income (up to $10,000 per month) when you are unable to work due to illness or injury. The policy will pay a monthly benefit for up to five years.
Involuntary Unemployment Cover Option
This option provides up to three months worth of payments if you’ve been made redundant from a full-time job, or if you’re self employed and your business has become financially insolvent. Benefit requirements:
- You must have had Involuntary Unemployment Cover for at least six months.
- You must work on a permanent basis for 30 hours or more per week.
- You must have been in continuous employment for at least six months before the claim.
- A waiting period of 28 days applies before you can receive a benefit.
- No benefit payable where the employer has given notice that the company may be offering or forcing redundancies, or that it may suspend or cease trade.
- You must be aged between 18 and 60.
Suncorp Income Protection Insurance provides cover for up to 75 per cent of your income, up to $10,000 a month, when injury or illness prevents you from working. Cover is available for hundreds of occupations.
Involuntary Unemployment Cover Option
This optional provides a monthly benefit of up to $4,000 for a maximum of three months when you are involuntarily unemployed. Cover is available for full-time employees and self-employed people. Benefit Requirements:
- You must have had cover in place for at least six months.
- You must be actively seeking employment.
- A 30-day waiting period applies.
- Available for policyholders between 18 and 60 years of age.
If you’re unable to work due to sickness or injury, AAMI offers a monthly benefit of up to $10,000 to replace up to 75 per cent of your regular income.
Redundancy Cover Option
This optional extra provides a benefit of up to $4,000 a month for a maximum of three months when you are out of work due to involuntary unemployment. Cover is available for employees and self-employed applicants. Benefit Requirements:
- A 30-day waiting period applies.
- You must have had cover in place for six months before you can make a claim.
- Available to policyholders aged from 18 to 60.
- You must be actively seeking employment.
While redundancy cover may seem like an amazing offer on paper - and it can certainly provide very useful cover for some Australians - you should be aware of all of the policy exclusions and conditions before you sign on the dotted line. You’ll need to have a clear understanding of what the claim eligibility requirements are in order to receive the benefit offered, before you can work out whether income protection for redundancy is the right cover option for you.