Does income protection cover redundancy?

Income protection is designed to help UK workers who would struggle financially if they were unable to work due to illness or injury.

Income protection works by paying out a percentage of your income, in monthly tax-free payments, while you’re unable to work due to illness or injury.

During the application, you can tailor your policy to best meet your circumstances. This includes choosing the following to best meet your needs:

• Policy term (how long cover will last)
• Payment period (how long you’ll receive payments for)
• Deferred period (how long you’ll need to wait before receiving payments)

Once a policy is in place, you’ll need to pay a monthly premium to keep your cover valid.

Should you become ill or develop an injury that prevents you from working, you can make a claim. You’ll then need to wait for a ‘deferred period’ to pass (common deferred period options can range from 4 – 52 weeks). If you’re still unable to work once your deferred period has ended, your payments will start.

These monthly payments will continue until you recover and return to work, until your payment period comes to an end or until your policy expires (whichever happens first).

It’s possible to make multiple claims on an income protection policy. However, you may need to wait until a specified period has passed in between in each claim (unless the new claim is related to the previous claim).

Income protection is available as a short term policy or a long term policy. Which option is right for you will depend on your needs and budget:

• Long term income protection – long term income protection covers you for a set term and offers a long term payment period. This means you could receive pay outs for the rest of your working life if your illness or injury results in you not being able to return to work.
• Short term income protection – short term income protection covers you for a set term and offers a short term payment period. This means that your payment period will be a maximum or 1, 2 or 5 years at a time depending on the insurer.

Redundancy insurance is designed to help UK workers who would struggle financially if they became involuntarily unemployed

Policies are often sold as a combination policy to protect against illness, injury and unemployment, so it could be suitable for those who want to protect their income from a wide range of circumstances.

How redundancy cover works can vary depending on the exact policy but, in general, it works by paying out to you if you lose your job involuntarily.

You’ll apply for a policy, agree on the terms and conditions with your insurer and once in place, you’ll pay a monthly premium.

If you find yourself in a position where you’re going to lose your job through no fault of your own, you can claim. Examples you could claim for include:

• If you’re made redundant
• If you need to take involuntary unemployment (for example, needing to leave your job to become a carer for an ill family member)
• If the company you work for closes down

You won’t be able to claim if you quit your job or are asked to leave due to misconduct. You also won’t be able to claim if you’re informed you will be made redundant and then take out a policy.

Once a claim has been made, you’ll need to wait until your deferred (or waiting) period has passed before you payments will begin. Common waiting period options include 6 months, 1 year and 2 years.

You’ll need to still be out of work once this period has come to an end before payments will start.

As it provides short term cover, payments are made for a maximum of up to 12 or 24 months.

These days, standalone redundancy insurance policies can be hard to come by. Instead, unemployment cover is usually sold as a combined policy alongside illness and injury. The most common options for this include:

• Accident, sickness and unemployment (ASU) – ASU covers you if you can’t work due to illness, injury and unemployment. It can provide you with regular payments while you’re off work, usually up to a maximum of 1 or 2 years.
• Payment protection insurance (PPI) –PPI can help you to protect a specific loan or debt if you can’t work due to illness, injury or unemployment. It pays out monthly to help you cover your monthly payments.
• Mortgage payment protection insurance (MMPI)– similar to PPI, MMPI specifically helps you to protect your mortgage if you can’t work due to illness, injury or unemployment. You can align your cover amount with your mortgage so your monthly repayments are protected.

If you’re self-employed it might be harder to find unemployment insurance. Policies are typically available to those in full-time employment.

However, you could take out an income protection policy to protect your self-employed earnings should you fall ill or injured.

We have a full income protection for self-employed guide if you require more information on this topic.

No, policies are typically only available to those in full time employment.

If you’ve been made redundant, you could receive some form of financial compensation from your employer or claim statutory redundancy pay.

If you struggle to get back into work you may be eligible for other government assistance such as job seekers allowance or universal credit.

You can find the full list of what assistance is available on the government website.