Being made redundant can strike any UK worker without warning, whether you have been with an employer for several months or twenty years – it is indiscriminate. And there is little doubt that the financial ramifications of this happening to you can be devastating. However, redundancy insurance is something that may give you great peace of mind.

What does it do?

Redundancy insurance helps replace your lost income in the event of you losing your job through no fault of your own, such as via involuntary redundancy. This unemployment cover is designed to provide you with a monthly cash sum – which has the bonus of being tax free – to help you meet your financial commitments.

So, things like your mortgage or rent; household insurances; credit card or loan repayments; even your day to day living costs, could potentially be all or partially met, subject to how much cover you have.

Obviously, having a redundancy insurance policy in place can ease the pressure at an already difficult time, giving you financial breathing space while you look for a new job.

You may hear this type of cover also called PPI – or payment protection insurance.

How long will the cover pay out for?

Features of a redundancy insurance policy will often vary depending on where and who you buy your insurance from. However, in general many of these will pay out for up to 12 months, or when you get back to work, whichever is sooner.

You may be able to get shorter cover (eg. for 6 months) as well as policies that give up to 24 months worth of benefits. However, the latter will typically come with a higher premium than a 12 month policy and a six month cover policy may not be long enough.

When can I claim?

A typical unemployment plan will start to pay out anywhere from 30-90 days after you have been made redundant. When considering the cover, you may wish to opt for a 30 day waiting period over a longer one, unless that you think you will be able to manage financially for up to three months before the policy starts to pay the benefits.

How much will I get?

This again can vary among providers but typically you can insure up to half your gross monthly earned income or £1,500, whatever amount is the lesser, under a redundancy cover insurance plan.

Is there anything else I need to know?

When choosing your unemployment cover, do make sure that you are eligible for the policy. People who would normally not be eligible to take advantage of an unemployment policy will usually include part time workers and retired people.

Also, if you had prior knowledge of your redundancy before you took the cover, then typically you will not be eligible to claim.

Getting a good deal

The benefits of a redundancy insurance policy may be clearer to you now, and the good news is that the cover does not have to cost a lot. It may be useful to know that you are not usually obliged to take a mortgage, loan or other lender’s unemployment insurance plan, which may often work out expensive than when buying it independently. By shopping around the specialist providers of unemployment cover you may be able to find the most suitable insurance for you – and at a price to suit your budget.