Many people worry about being made redundant and what it could mean for their families, homes and bills. If you are suddenly out of a job, it can make paying your mortgage, bills and day to day expenses a struggle, especially if you have a family to provide for. While it isn’t possible to protect yourself from being made redundant, there are some ways of protecting your income if you’re made redundant.
Preparing for losing your job isn’t always easy, and a large number of people would rather avoid the issue than face it head on, but the more prepared you are for redundancy, the better protection you can give yourself. This guide explains how to protect your income if you’re made redundant and some helpful tips from our experts.
How to protect yourself against redundancy
Redundancy can often come with no warning and depending on your situation, finding a new job can be a lengthy and difficult task. Ideally, you should try to prepare by having three months’ worth of expenses backed up in savings just in case you find yourself out of work.
Depending solely on savings in the event of redundancy isn’t a realistic option for many, as you may not have enough savings set aside and you will find they soon disappear quickly when you are out of work. While you might be entitled to some financial support from the government, the chances are it won’t be enough to support your existing lifestyle.
Another way to protect yourself and your income from redundancy is to invest in a type of redundancy insurance that will pay out should you lose your job. There are a number of insurance policies out there that can help you with your finances if you are made redundant from your job.
Even if there is no indication from your employer that you will be made redundant, it is worth considering some form of redundancy insurance as often redundancy comes from completely out the blue.
What insurance policies can protect your income from redundancy?
There are various insurance policies available that can protect your income from redundancy and help you out if you are suddenly left without a job. Choosing the right kind of insurance for your situation is important. These are the main three types of insurance that can protect you if you lose your job:
1. Payment Protection Insurance (PPI)
Payment protection insurance is also sometimes known as accident, sickness and unemployment (ASU) insurance, and it is an insurance policy that will pay out if you are unable to earn a living due to being made redundant, injury or illness. This type of cover will pay you monthly payments after you make an eligible claim, and the payments will be enough to cover all your debt repayments.
Some payment protection insurance policies will pay out until either you find new work, or for a fixed period of time, and payments will typically start three months after you have stopped receiving earnings from employment. These terms vary greatly depending on the policy type and insurance provider, so it is essential to check before you buy cover.
2. Mortgage Payment Protection Insurance (MPPI)
If you have a mortgage to pay, then you can get insurance to specifically cover your mortgage repayments in the event of losing your job. The majority of mortgage payment protection insurance policies will begin paying after you have been redundant for three months and will continue to pay for up to two years.
You can choose various levels of cover for your mortgage payment protection depending on what you want to be insured for. You can opt for unemployment only cover which will pay out if you lose your job, or you can also include accident and sickness cover which will protect you if you can no longer work because of illness or injury.
3. Short-Term Income Protection Insurance (STIP)
Short-term income protection will replace a portion of your usual income for a predetermined period of time, usually around 12 to 24 months. It will provide you with short-term cover if you are made redundant so that you can get by while you find new employment. This should not be confused with other types of income protection insurance which will usually not cover for redundancy.
With payment protection insurance and mortgage payment protection, the size of the monthly payouts will be dependent on your loan or mortgage repayments and not your income. Short-term income protection insurance will pay out a proportion of your income instead of being linked to your current debt repayments.