Whether it is because of overseas outsourcing, an industry slow-down, or even the advent of robotic technologies, involuntary redundancies can be a tough thing to face up to. Unfortunately, we’re often unprepared for them, and are left facing the reality of not having a reliable income for an uncertain period of time. In the meantime, the bills keep rolling in while mortgage repayments or rent build up – forcing some to take drastic measures, such as selling the house.
Preparing for an unexpected job loss can be as simple as having an emergency savings fund, but some people might protect themselves by taking out what’s known as redundancy insurance.
What is redundancy insurance?
Not to be confused with income protection insurance, which generally covers partial loss of income from being unable to work due to illness or injury, redundancy insurance offers limited financial protection in the case of involuntary redundancy.
Redundancy insurance is quite hard to come by in Australia, with only a small number of general insurers offering it. It’s also quite a new thing, with insurance companies recently adding it to their packages as a result of the increasing competition between firms in the market.
How to buy redundancy insurance
You can purchase a standalone redundancy insurance policy, or redundancy cover as an optional extra inclusion within an income protection policy (for an additional premium) from the insurers we’ve listed in the table below.
The benefit of buying a standalone redundancy insurance policy is higher benefit limits and benefit periods. In contrast, redundancy cover included in an income protection policy makes the premiums for that policy more expensive without adding a lot of benefit in terms of coverage.
This year for the first time, we added Redundancy Cover included in an income protection policy as part of what we research and rate when it comes to direct income protection insurance. If you’ve thought about the pros and cons and still want to look for direct income protection insurance with redundancy cover, visit our website:
The table below shows some of our best life insurance options available for a non-smoking female aged 30-39 years old, who is working in a white collar occupation group such as a clerk or office administrator. This table is sorted by Star Rating (highest to lowest).
Compare the rest of your options when it comes to term life insurance using our website:
Which insurers offer redundancy insurance?
Of the direct income protection products assessed by Canstar, the following products listed on our comparison tables offer redundancy insurance. The information in the table below is correct at time of writing, but please be sure to check the details, terms and conditions with the relevant insurer.
|AAMI||Option of covering 75% of income up to $4,000 per month. Must have been working for at least 20 hours per week.|
|ANZ||Standard inclusion of cover for 37.5% of income up to $3,000 per month. Must have been working for at least 20 hours per week.|
|Insuranceline||Option of covering 85% of income up to $3,000 per month. Must have been working for at least 30 hours per week.|
|NIB||Option of covering 85% of income up to $3,000 per month. Must have been working for at least 30 hours per week.|
|NRMA||Option of covering 85% of income up to $3,000 per month. Must have been working for at least 30 hours per week.|
|Suncorp||Option of covering 75% of income up to $4,000 per month. Must have been working for at least 20 hours per week.|
|Source: www.canstar.com.au Based on information provided to Canstar by the relevant insurers. Please check all terms and conditions with the insurers.|
Features of redundancy insurance
The coverage provided by redundancy insurance generally includes the following:
- Generally, redundancy protection can pay monthly benefits of up to 85% of your usual income after you lose your job for a set period of time.
- Maximum benefit limits apply, with $7,000/month the most some insurers are willing to pay per month.
- As you would expect, there’s a no-claim (qualifying) period. This can range from 3 to 6 months from the start of the policy.
- There’s also a waiting period of usually between 30-90 days. For example, with a 30-day waiting period, the insurer won’t pay the redundancy benefit until you have been off work for a minimum of 30 days. Some insurers offer a choice of how long your waiting period is, e.g. 30, 60, or 90 days.
- Most insurers will waive premiums while you are unemployed and receiving the monthly benefit.
- Some policies offer a training benefit which allows you to claim the cost of the study and retraining you undertook in order to get a new job. Some offer up to $2,500 for this benefit.
Redundancy insurance eligibility requirements
To be eligible for redundancy protection and to qualify for a claim, there are a number of requirements that usually need to be satisfied. Here are some of the common requirements and restrictions:
- Required to be a full-time employee (not self-employed or a contractor).
- Need to have been employed for a set period of time with the same company.
- Not all occupations, industries, or employers are eligible for protection.
- To receive the benefit, you’ll often have to prove that the redundancy was involuntary and did not have anything to do with your behaviour, conduct, or performance as an employee. So the cover does not apply if you were fired from your job rather than being made redundant.
Do I need redundancy insurance?
A redundancy policy might provide some financial reassurance while you are looking for a new position. Nevertheless, you need to weigh up the cost of the premiums against the chances of you actually being made redundant (and being eligible for the benefits). Also consider if it’s better to save this money instead – perhaps in a rainy day fund.
There are other options if you are made redundant. You can seek help from jobactive to find a way back into the workforce. They can help with access to a wide database of vacant job listings, job training, skills development, resume preparation, and more. Other services for job hunting help after redundancy include the Community Development Programme for those in remote areas and Indigenous job seekers, and Disability Employment Services for those with a disability.
If you are experiencing financial hardship due to redundancy, contact Centrelink to find out if you are eligible for Newstart Allowance (for those aged over 22 years but under Age Pension eligibility age) or Youth Allowance (for those returning to full-time study).
Find out more about income protection options with Canstar: