Life Insurance And Job Loss: What's Covered?

Life insurance does not typically cover job loss, but there are other types of insurance that do. Redundancy insurance, also known as unemployment insurance, is a form of income protection that can pay out if you lose your job. This type of insurance is often used to protect mortgage repayments, income or loan repayments, or your wages. There are three main types of redundancy insurance: Mortgage Payment Protection Insurance (MPPI), Payment Protection Insurance (PPI), and Unemployment Protection.

Income protection insurance

There are several types of income protection insurance, including:

• Accident and sickness cover
• Accident, sickness, and unemployment cover (ASU)
• Payment protection insurance (PPI)
• Mortgage payment protection insurance (MPPI)

Short-term income protection insurance typically covers a fixed period, usually one to two years, while long-term income protection insurance is more expensive and pays out until you return to work, reach retirement age, or pass away. The payout amount is generally around 50% to 70% of your monthly income before tax.

When considering income protection insurance, it is important to review the terms and conditions carefully, including any exclusions and the waiting or 'deferred' period before payouts begin. The cost of the insurance depends on factors such as your salary, occupation, deferred period, payout term, age, and health.

Redundancy insurance

While there is no such thing as fail-safe redundancy cover, there are some 'redundancy insurance' policies that can help you if you lose your job. Redundancy insurance is a type of short-term income protection cover, sometimes called unemployment protection insurance. It can help provide peace of mind when you have monthly expenses like mortgage repayments and bills to pay.

If you're in permanent employment and have a family or financial responsibilities, redundancy insurance might be worth considering. It could be particularly useful if you're in a job where the chance of redundancy is medium to high, but losing your job is still likely to be three to six months away.

Who is eligible for redundancy insurance?

You're unlikely to be eligible for redundancy insurance if you work part-time, have been in your current role for less than six months, are self-employed, or work on a temporary contract.

There are three main types of redundancy insurance:

• Mortgage payment protection insurance (MPPI): This is often taken out along with your mortgage and can pay out for up to 12 months after your earnings have ended.
• Payment protection insurance (PPI): This covers you in the event of accidents, sickness, and unemployment, and you might already have it with a personal loan or credit card.
• Unemployment protection: It's possible to get unemployment cover as a standalone policy. This can replace a proportion of your salary and typically pays out over a fixed period of 12 months or longer.

The cost of redundancy insurance will vary between providers and will depend on your situation and the options you choose. Factors that can affect the price include your age, the percentage of salary you choose to insure, the length of time you'll receive payments for, and the pre-agreed waiting phase before payments start.

Unemployment protection insurance

There are several types of unemployment protection insurance available:

• Mortgage payment protection insurance (MPPI): This type of insurance is often taken out alongside a mortgage and can help cover mortgage repayments if you lose your job. It typically starts paying out three months after unemployment and can continue for up to 12 months.
• Accident, sickness, and unemployment insurance (ASU): This provides comprehensive protection against situations that might prevent you from working, including redundancy. It usually covers a proportion of your income for a short-term period, typically 12 months, and is not tied to a specific debt.
• Payment protection insurance (PPI): This type of insurance is designed to cover the monthly payments on a loan or credit card if you are unable to work. It can provide a set amount for up to 12-24 months, usually starting three months after unemployment.
• Unemployment insurance: This is a standalone redundancy cover that provides tax-free monthly payouts for a specified period, typically 12-24 months. It can cover up to 70% of your annual income before tax and continues until you find another job or the policy term ends. However, these policies are increasingly hard to find, and a combined ASU policy may be a more viable option.

It is important to note that unemployment protection insurance does not cover voluntary redundancy, resignation, or dismissal due to misconduct. Additionally, self-employed individuals, part-time workers, and those on temporary contracts may not be eligible for this type of insurance.

Payment protection insurance

PPI is designed to cover a single debt, such as a mortgage, loan, or credit card. It continues to make payments if the insured is unable to work. It usually covers 12 to 18 months, but some policies can even pay out for up to five years.

PPI generally only covers loan or mortgage repayments, not income. However, some mortgage payment protection policies pay an additional sum to help with other bills.

Standalone redundancy policies are not widely available, but combined accident, sickness, and unemployment (ASU) cover can be purchased. ASU policies are usually short-term, lasting around 12 months and are not tied to a specific debt.

PPI is not suitable for those who are self-employed, work part-time, or are on a temporary contract. It is also not applicable if redundancies have already been announced or are likely to occur soon.

Standalone redundancy policies

ASU insurance is a more comprehensive form of protection that covers situations that might prevent you from working, such as serious illness or injury, in addition to providing protection in the event of redundancy. This type of policy usually lasts for around 12 months and is not tied to a specific debt.

It is important to note that redundancy insurance will not be valid if you take out cover when you know you are at risk of redundancy, or if you take voluntary redundancy. Additionally, if you are self-employed, work part-time, or are on a temporary contract, you are unlikely to be eligible for this type of insurance.

When considering redundancy insurance, it is essential to carefully review the terms and conditions of the policy to ensure that you qualify for a payout. It is also recommended to shop around for the best deal and not to purchase the insurance automatically from your loan or mortgage provider.

Frequently asked questions