Do you have a backup plan? Redundancy insurance pays you if you lose your job unexpectedly.
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Redundancy insurance pays a monthly benefit if you lose your job. It is an optional extra offered as part of some income protection insurance policies and generally covers you for up to $3,000 for about 3 months, while you look for a new job.
In this guide, we go through the ins and outs of redundancy insurance and whether it's worth the cost.
Speak to an insurance adviser about redundancy insurance options
Which brands offer redundancy insurance?
Redundancy insurance is not generally offered as a standalone policy. Usually, it comes as an optional extra with income protection policies.
Must read: Redundancy cover during COVID-19
Due to the current Coronavirus crisis, many insurers have temporarily paused offering redundancy cover options for new policies. If you have an existing policy with this type of cover, your insurance should still be honoured but you should always double check driectly with your provider.
Our table runs through the general offerings of involuntary unemployment for the brands that have offered it. Although some of these brands no longer offer this cover, we have left them displayed in case you have existing cover with them.
* Information correct as of October 2020. Please keep in mind insurers are rapidly changing their offerings and some information may have changed.
What is redundancy insurance?
Redundancy insurance is made to provide you with short-term financial support if you unexpectedly lose your job. It will usually pay you up to between $3,000 - $4,000 a month to help you keep up with bills and everyday living expenses while you look for a new job.
Most standard income protection policies do not cover you for involuntary redundancy, which is where redundancy insurance comes in.
In Australia, you will find that most insurers offer redundancy cover as an optional extra with their income protection policies. We've outlined some brands who cover redundancy below for you to compare.
Does income protection cover redundancy?
Income protection insurance does not automatically cover you for redundancy. Redundancy insurance is usually an optional extra that is offered by insurers as part of income protection and not all providers who offer income protection have this option.
If you think you may be made redundant in the future and are looking for income protection, be sure to check with insurance providers if they offer this type of cover as an extra. It will likely be an additional cost so will make your premiums more expensive. Be sure to factor this in when looking at this type of cover.
What does redundancy insurance cover?
Redundancy insurance covers you financially if you are sacked, fired or involuntarily unemployed. You need to hold the policy for about 6 months before you are made redundant. If your claim is successful, it will usually come with the following:
- A monthly benefit payment: Your insurer will pay you up to 85% of what you earned at your job. Like a regular income, it's usually paid to you in monthly installments. For example, you might receive 75% of your income or up to $3,000 a month.
- A benefit period: All types of insurance come with a benefit period. This is the length of time you will receive payments. For example, if your benefit period is 3 months, you'll receive 3 months worth of payments from your insurer. Often, you can choose how long you want a benefit period to last. However, it's usually capped at 3 months with redundancy cover. In most cases, it ordinarily also comes with an expiry age, e.g. 65 years old.
Keep in mind that like most policies, there will be a no claim period. In a nutshell, you need to have held the policy for a certain period of time before you are eligible to make a claim. With redundancy cover, this is usually around 6 months. This is different from a waiting period. After you are made redundant, you will usually need to serve a 28 or 30 waiting period before you are allowed to make a claim.
When won't I be covered by redundancy insurance?
There's a few sneaky exclusions associated with redundancy insurance. Make sure you're aware of them before you sign up for a policy, otherwise you could be in for a nasty shock.
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 of your policy starting
- Voluntarily or if you're self employed
- Due to illness or injury
- If you're 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
You'll also need to work for a set amount of hours per week (usually 20-30 hours), and there is usually a waiting period of about 30 days you'll have to wait out before you're able to claim.
See a larger list of eligibility requirements below.
Redundancy insurance eligibility requirements
If your income protection policy offers a redundancy policy, you'll need to meet some conditions. Generally, you must:
- Be unemployed for a waiting period for 28 or 30 days from when you are made redundant.
- You must be unemployed at the end of the waiting period.
- You will need to be employed for at least 20 hours a week, or in some cases, 30.
- You will need to have been continuously employed for six months prior to making a claim.
- You must register with Centrelink or a recruitment agency, actively seeking work.
- The policyholder can have no stream of income during this period whatsoever, this may include part-time or casual work.
Can I get redundancy insurance during a recession?
Yes, but it might be more expensive than usual. This is because job losses are much more common so insurers will need to compensate with higher overall premiums. Also keep in mind that you need to have held your policy for at least 6 months, so it might not be a solution if you're worried about losing your job soon.
Do I need redundancy insurance?
Redundancy insurance isn't compulsory, but it could be a good option for you if you're a sole breadwinner or your family relies heavily on your income. If you're unsure whether you need redundancy insurance or not, consider the following:
- Do you, your partner or your family rely on your income to pay the bills and everyday expenses?
- Is redundancy cover enough? Keep in mind that most have a monthly benefit limit of between $3,000 and $4,000.
- What are your chances of being made redundant? Do you work in an industry with poor job stability? Is the economy weak? These could make your occupation vulnerable.
- Could you find another job easily and one you like? Redundancy cover can give you the chance to focus on finding the right job, rather than jumping into the first thing.
- Do you have any savings? Even if you have some money put aside, you need to make sure it's enough to cover the bills and expenses. You might also want to keep those savings for something else.
How to successfully claim for redundancy
In order to make a successful claim, you will need to meet and do the following:
- Be involuntarily terminated
- Have been in the role for at least 6 months
- Serve the waiting period
- Make a claim to your insurer
Keep in mind that every policy will have different exclusions and conditions before you sign on the dotted line. You'll also 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.
Can I still claim on my insurance if I get a redundancy payout from my former employer?
Generally, yes. ANZ state that "the amount of money you receive from your former employer or the government in the form of a settlement or payout is irrelevant." So consider redundancy insurance as a nice little top up.
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