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Do you have a backup plan? Redundancy insurance pays you if you lose your job unexpectedly.
Redundancy insurance pays up to 85% of your typical income if you suddenly lose your job because of involuntary redundancy. The payout is designed to help you keep up with bills while you find a new job. Best of all, you can usually claim it on your tax return which means you’re essentially protected without being out of pocket. It may be a win-win.
What's in this guide?
- What is redundancy insurance?
- What does redundancy insurance cover?
- When aren't I covered by redundancy insurance?
- Redundancy insurance eligibility requirements
- Can I get redundancy insurance during a recession?
- Do I need redundancy insurance?
- How to successfully claim for redundancy insurance
- Can I still claim on my insurance if I get a redundancy payout from my former employer?
What is redundancy insurance?
Redundancy insurance is designed to provide you with short-term financial support if you unexpectedly lose your job. It usually pays you up to 85% of your salary per month to help you keep up with bills and everyday living expenses while you look for a new job.
Most standard income protection policies do not cover you for involuntary redundancy, which is where redundancy insurance comes in.
In New Zealand, you will find that many insurance providers offer redundancy cover as an optional add on with its income protection policy.
What does redundancy insurance cover?
Redundancy insurance covers you financially if you are made involuntarily redundant. Some policies do not cover you if you became unemployed due to your conduct as an employee, for example, if you were fired due to your behaviour.
Check out the insurance providers product disclosure statement (PDS) to make sure you understand its full terms. You need to hold the policy for approximately six months prior to being made redundant. This period can be less with some policies. If your claim is successful, it usually has the following:
- A monthly benefit payment: Your insurer pay you up to 85% of what you earned at your job. Like your regular income, it’s usually paid in monthly instalments. For example, you might receive 75% of your income or up to $3,000 a month.
- A benefit period: All types of insurance come with a benefit period, which is the length of time you receive payments. For example, if your benefit period is three months, you receive three months worth of payments from your insurer. Often, you can choose how long you want a benefit period to last. However, it may be capped, for example, six months redundancy cover. In most cases, it also ordinarily comes with an expiry age, for example, 60 years old.
Bear in mind that like most policies, there is a no-claim period. In a nutshell, you need to have held the policy for a certain period before you are eligible to make a claim.
With redundancy cover, this is usually around six months. The no-claim period is different from the waiting period. After you are made redundant, you usually need to serve a waiting period before you can make a claim. The waiting period can vary, for example, from 30 to 90 days.
You do not receive any benefit until you have been out of work for this period. Some insurance providers let you choose the waiting period.
When aren’t I covered by redundancy insurance?
There are a few sneaky exclusions associated with redundancy insurance. Make sure you’re aware of them before you sign up for a policy, otherwise you could be in for a nasty shock.
Typically, you won’t be covered if the redundancy occurs because:
- Six months before your policy starts your employer made you aware of the redundancy occurring
- It is within six (approximately) months of your policy starting
- It was voluntary or if you’re self employed
- It is due to illness or injury
- You live outside New Zealand
- There was a public announcement of reduction in staff numbers through redundancy
- It is due to the seasonal, casual or temporary nature of your work
- It is due to unlawful acts
- It is due to misconduct or suspension
You also need to work for a set amount of hours per week (usually 20-30 hours), and there is usually a waiting period of about 30 days before you can make a claim.
See a larger list of eligibility requirements below.
Redundancy insurance eligibility requirements
If your income protection policy offers a redundancy policy, you need to meet some conditions. Typically, you must:
- Be unemployed for a waiting period of approximately 30 days from when you are made redundant
- Be unemployed at the end of the waiting period
- Be employed for at least 20 hours a week
- Have been continuously employed for six months prior to making a claim
- You must be registered with Work and Income or a recruitment agency and actively seeking work
- Have no other form of income during this period whatsoever, which may include part-time or casual work
Can I get redundancy insurance during a recession?
Yes, but it might be more expensive than usual, which is because job losses are much more common so insurers need to compensate with higher overall premiums.
Also keep in mind that you need to have held your policy for at least six months, so it might not be a solution if you’re worried about losing your job soon.
Do I need redundancy insurance?
Redundancy insurance isn’t compulsory, but it could be a good option for you if you’re the sole breadwinner or your family relies heavily on your income. If you’re unsure whether you need redundancy insurance or not, consider the following:
- Do you, your partner or family rely on your income to pay the bills and everyday expenses?
- Is redundancy cover enough? Bear in mind that most have a monthly benefit limit, for example, between $3,000 and $4,000.
- What are your chances of being made redundant? Do you work in an industry with poor job stability? Is the economy weak? Could these make your occupation vulnerable.
- Could you find another job easily and one you like? Redundancy cover can give you the chance to focus on finding the right job, rather than jumping into the first one.
- Do you have any savings? Even if you have some money put aside, you need to make sure it’s enough to cover the bills and expenses. You might also want to keep those savings for something else.
How to successfully claim for redundancy insurance
To make a successful claim, you need to meet and do the following:
- Be involuntarily terminated from your job
- Have been in the role for at least six months
- Serve the waiting period
- Make a claim to your insurer
Every policy has different exclusions and conditions to consider before you sign on the dotted line. You also need to have a clear understanding of what the claim eligibility requirements are to receive the benefit on offer, before you can work out whether income protection for redundancy is the right cover option for you.
Can I still claim on my insurance if I get a redundancy payout from my former employer?
Generally, yes you can claim even if you receive a redundancy package from your employer. So you can consider redundancy insurance as a nice little top-up.
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