Redundancy insurance

Cover if you lose your job

Worrying about losing your job can be just as stressful as actually being made redundant. If you're not sure how you would pay the bills if you were laid off, you might consider taking out redundancy insurance. Here we explain what is and isn't covered in these policies, so you can work out whether it's right for you.

What is redundancy insurance?

Redundancy insurance can provide short-term financial assistance if you lose your job. This is not cover for when you choose to leave your job. Some insurers offer it as optional cover on income protection policies.

To be eligible for redundancy insurance, you need to meet the insurer's definition of 'involuntary unemployment' which can mean for example, if you are:

  • An employee - You have been 'let go' from a job that has been paying you a salary, wage or commission.
  • Self-employed - Your business has stopped trading because you haven't been able to meet the business' financial commitments. 
  • On a fixed term contract (e.g. 12 months or more) - The contract stopped before a date you previously agreed on, and not by your own choice.

Choosing a redundancy insurance policy

If you are considering whether to take out redundancy insurance, here are some things to think about:

Likelihood of redundancy

How likely is it that you could lose your job? How quickly could you find another job, and how would you pay the bills while you were looking for work?

No-claim period

Many policies will not allow you to claim for a certain period (usually 3-6 months) from the date you take out cover. So, if you were made redundant soon after signing up, you may not receive any benefits at all if you find work again before the no-claim period expires.

Waiting period

Some policies will not pay you until you have been out of work for a certain length of time, usually 30-90 days. This means you would need to find another way to pay your bills during this time.

Payment limits

Benefit payments are usually a proportion of your current monthly income, for example 75%. Check the maximum amount the insurer would pay you each month. Will this be enough for you and your family?

Payment period

Insurers usually only pay benefits for a maximum amount of time, like 3 months. If you're out of work for longer than this, you would need to find money elsewhere to pay your bills.

Expiry age

Most policies expire when you reach a certain age, such as 65.

Redundancy payment

If you are made redundant, you may be entitled to redundancy pay. Depending on your circumstances, this might reduce the need for separate insurance. Visit the Fair Work Ombudsman's website for information on redundancy pay and entitlements.

What's not covered?

Before you buy a policy, check the product disclosure statement (PDS) to find out what exclusions apply.

Some situations that redundancy benefits will usually not cover you for include:

  • Pregnancy, miscarriage or childbirth
  • Voluntary resignation, retirement or abandonment of your employment
  • The ending of a fixed-term contract after your agreed termination date
  • Seasonal employment
  • Unemployment because of sickness or injury.

If you lose your job, redundancy cover can tide you over until you find a new one, but think carefully about whether it is right for you.

Related links

Last updated: 30 Nov 2016