Find the appropriate insurance that can cover you at a time of unemployment.
Losing your job is something many of us will experience at least once in our lives.
That’s why it makes sense to have some form of financial planning in place to make it easier to deal with and reduce the financial hardship suffered in the event of unemployment or redundancy. This article will discuss what types of protective cover can offer support in the event of redundancy.
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What insurance is available to cover against loss of job in Australia?
There are a number of different types of cover available on the Australian market that can provide financial relief in the event that you lose your job, both from life insurance companies and general insurance providers. These include:
However, a number of benefits and exclusions apply to each different type of policy, so before you rush out and buy cover, it’s important that you understand all the terms and conditions of the options available as different policies will suit different people.
Income protection insurance and loss of job
Income protection insurance offers protection for you and your family if you are unable to work due to injury or illness. This type of cover insures you for a predetermined level of your income, usually 75 per cent of your salary, and will pay that amount for the period of time that injury or illness keep you out of the workforce. Income protection insurance is an important consideration for anyone who relies on their income to pay their bills and look after regular expenses.
An income protection by itself wont cover loss of job
Many Australians mistakenly believe that their income protection insurance policy will cover them in the instance that they lose their job. Unlike policies in the United States and United Kingdom, however, income protection in Australia from life insurance companies will not provide a benefit payment if the policyholder is involuntarily unemployed or made redundant. In fact, it is actually illegal for life insurance providers to pay out in these circumstances.
'General insurers' will offer loss of job cover
There are a number of policies offered by general insurance companies in Australia that will provide a payout for a defined number of months (up to maximum amount) in the event that the insured is made redundant. This can sometimes be packaged together with income protection.
How can I find a general insurer?
Some brands will cover products from both a life insurer and a general insurer e.g. ANZ's Income Protection Policy covers both
- Income Protection from OnePath Life Limited
- Involuntary Unemployment from OnePath General Insurance
In addition, even though policies from life insurance companies may not provide a benefit payment, some policies do provide other support to the policyholder when they suffer the loss of their job. These include:
- Premium waiver: Some policies will waive the policyholder’s premiums for a certain period until they can find another job.
- Loan cover benefit: Your policy may include cover to help you stay on top of your loan repayments. For example, your policy may cover the minimum monthly repayments on your mortgage or credit card debt for a certain period, giving you time to gain new employment and a steady stream of income.
- Policy suspension: Your income protection cover can be suspended for a period of time while you are involuntarily unemployed.
Pros and cons of income protection as insurance against job loss
Mortgage protection insurance and loss of job
Mortgage protection insurance can also protect you when you lose your job, as it’s designed to kick in to cover you against any mishaps that may affect your ability to make loan repayments. If you lose your job, fall ill or even die, mortgage protection insurance will cover your mortgage repayments for a certain period of time to help either you or your family regain control of your finances.
Mortgage protection policies will generally include the following features:
- The security and peace of mind that comes with knowing you’ll have help with your mortgage payments if the unexpected happens.
- A monthly payment to help cover your mortgage costs for a defined period of time.
- A monthly involuntary unemployment benefit when you become unemployed through no choice or fault of your own and due to factors outside your control.
- A lump sum payout to your family if you die, and a monthly benefit for a set period if you become disabled and are unable to work.
- Three factors generally influence the cost of your premiums: your likelihood of becoming unemployed (the nature of your industry and possibly your job history could be taken into account), the state of the economy and the cost of your mortgage payments.
Pros and cons of mortgage protection insurance to cover job loss
Loss of job insurance policies from general insurance provider: What you need to know
While it is illegal for Australian life insurance providers to offer redundancy cover, general insurance providers can and do offer different types of job loss policies:
- Involuntary unemployment: These policies will provide a monthly benefit if you lose your job through no fault of your own and due to circumstances beyond your control.
- Sickness of accidental injury: If illness or injury mean you are unable to work, this type of cover is designed to help you keep paying your bills on time.
However, a number of restrictions apply to loss of job policies from general insurance providers. First of all, while life insurance policies are guaranteed renewable, the provider can choose to end a general insurance policy at any time. For example, if the unemployment rate skyrockets and an insurer decides they no longer want to offer redundancy cover, they can cancel any policies already in place.
Other policies may require you to have signed up to their policy for a certain period of time (eg. six months) before you are eligible for cover, while there may also be a waiting period once you lose your job before the cover actually kicks in. Read the PDS of each policy closely so you know exactly what each policy covers.
Tips to manage your finances and insurance policies if you lose your job
- Don’t take it personally: Losing your job can be a bitter pill to swallow, but the sad truth is that it’s a fact of life. The sooner you accept it and move on, the sooner you’ll be able to take control of your finances.
- Check your employee entitlements: Check your award or your contract of employment to make sure you get the redundancy payout you’re entitled to.
- Speak to your accountant: Not only can your accountant help you manage your finances in the weeks and months ahead, but they can also help you understand whether you’re entitled to any tax breaks because of your redundancy payout.
- Be careful with how you spend your redundancy payment: Having all that money sitting there in your account can be tempting, but you don’t know how long you’re going to be out of a job so budget wisely. Investing some of the money may also be an option.
- Examine your overall finances: Work out a plan to help you and your family survive financially until you can find work.
- Contact Centrelink to find out if you qualify for any benefits: If they’re available to you, don’t be too proud or embarrassed to accept them.
- Manage your mortgage: If you’re ahead on home loan repayments you may be able to access some funds through a redraw facility. If not, get in touch with your lender to determine whether it’s possible to re-negotiate your loan.
- Look for work: Be professional about it, and don’t be disheartened by rejections. This is also a good time to reflect on your career and decide whether you’re happy in your chosen industry or whether you might like to branch out into a different field.
You can find yourself unable to work for any number of reasons, from illness to injury and even involuntary redundancy, and often at the most unexpected times. With this in mind, it makes sense to have insurance cover in place to protect you should you find yourself out of work.
Compare the range of policies on offer and seek expert advice in order to find the most suitable policy for your needs.