Redundancy Insurance from British Insurance
Policies covering loss of employment sound like a good idea – perhaps until you start wading through the baffling mountain of terms, jargon and names attached to this sector of the market. Fear not – there is a very little difference between redundancy insurance and unemployment insurance, two names commonly used and confused. They are both part of the payment protection insurance (PPI) family, which, in a nutshell, provides an income should you lose yours due to involuntary redundancy.
Your income, in many ways, is your general lifeline. Modern living typically involves debt for most people, whether it be the mortgage for your house, a loan for a vehicle or another wad of borrowed cash from the bank or credit card for general use. Without income from a job lifeline, you cannot keep up with these payments and will find yourself in the red and in trouble with creditors pretty quickly.
Redundancy insurance is designed to protect you from a loss of income through being made redundant involuntarily from your job. Being made involuntarily redundant is not an especially common experience, but is not a pleasant experience when it does happen. You should get a notice period, but when that expires, if you have not found alternative work, you are in financial difficulty almost immediately. This is where redundancy insurance comes in handy.
Firstly, it should be noted that a redundancy policy will only cover just that – it will normally only kick in following a satisfactory claim if you have been made involuntarily redundant. It is handy for people who do not want a broad, often more expensive payment protection policy, and for those who fear their long-term employment may at some stage be under threat.
If the envelope with the redundancy note does come, providing you are eligible for unemployment insurance, you will get a monthly lump sum as part of your redundancy insurance, typically a certain percentage of your regular income, paid into your account tax-free to help with all those regular costs that would otherwise be a serious worry. The idea is that it will arrive as a regular salary would.
Bear in mind it will rarely be a sum that covers your total income – it will be a certain slice, up to a maximum of around £1,000 in the case of many firms.
Limitations Explained
Bear in mind a redundancy payment plan from your insurer is unlikely to arrive from day one of unemployment – there is usually a period of time that must expire before the cash starts to arrive, although some companies will backdate it to the first day you became out of work. How long you will have to wait depends on the individual insurer, and this will affect your choice of insurer too. If you have plenty of savings and could get by for a while it may make overall sense to go with a provider who does have a longer waiting period for the policy to arrive. If you don't have much stashed away you may need someone who will pay out after around 30 days.
Also, if you resign, or get sacked, or take a voluntary redundancy offer, you will not be covered. Resignation is your choice, getting sacked is clearly classed as your own fault and taking a voluntary resignation offer is your own choice – the key factor in losing your job through redundancy is that it is no fault of your own.
In employment regulation terms, examples of when you are made genuinely redundant include when the work you do is no longer needed, such as when the business is failing or moving in to a new line of business which means your skills are no longer needed, or a new way of working is introduced that makes your job unnecessary, such as an automated machine that arrives that can do your job without the need for a physical pair of hands. If the business becomes insolvent, moves to another area or transfers to a new employer the result could again be redundancy. You may also be made officially redundant if your employer is the sole proprietor of the business and dies.
Some people might think the welfare state, a system meant to cover us in times of need, should suffice if you were to lose your job in this manner. In reality, it is not likely to even come close. Jobseekers allowance in the UK, if you are able to qualify for it, stretches to around £60 per week – just enough to eat and get around, but nowhere near enough for a mortgage, or car loan, or similar debt. The qualification process is strict, involving forms, regular interviews and even a diary to prove you are actively seeking work. The added stress of coming to terms with the fact you must bite the bullet and sign on is also likely to be an unwelcome experience. Factors such as living with a partner on a certain income could mean you are not even able to claim it successfully.
Where to Buy
Before you start to look around – be warned. Redundancy insurance is part of the payment protection insurance industry, still under the spotlight of the Competition Commission after the sector was found to be mis-selling policies. This mainly refers to policies which firms attempt to sell to people are they are taking out a loan – perhaps general payment protection cover rather than a specific redundancy policy, but nonetheless take heed and do not go for the first deal you are offered.
You should also be aware that the bigger names are not the only people selling this type of redundancy insurance – there are smaller, independent, standalone firms that also deal in providing good value, comprehensive redundancy cover. Some of them you never have even heard of, but a few of them will specialise in selling just this type of insurance, possibly meaning they could provide you with a better deal and more useful advice too.
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