The big argument for Redundancy Insurance is:

There’s no NEED to lose all your income if you lose your job, but …

Most people agree that a “job for life” doesn’t exist anymore, so this risk is real. Redundancy is all too common - it is a “risk” every employee now faces.

The few who offer some form redundancy insurance generally have a policy which promises to pay up to 70% of your gross (before tax) salary for up to 6 months if you are made redundant from your job. So, on the surface the mortgage, food and power bills look like they can be met, which reduce your stress and increase your new employment chances.

Many people think their “mortgage protection policies” cover this with a redundancy clause, but close reading of the fine print on those policies usually shows that they only pay 6 months worth of mortgage payments – and they tend to offset whatever severance payment you got when being made redundant. The reality is they are usually not likely to contribute to mortgage payments, let alone other living costs.

Redundancy Insurance policies are few and far between, and they do have pretty strict qualification conditions and a limitation on payments.

You do have to put the cover in place before redundancy is a threat - you can’t insure against something that’s already happening.

Most professionals would consider that the premium for this cover, because it is related to your income earning ability, should be tax-deductible.

A genuine redundancy insurance cover may be worth considering if you live pay-packet to pay-packet, and are in a reasonably high risk industry where lay-off’s are not uncommon. However, you do need to be aware that payments are limited and the redundancy clause in a mortgage protection policy is usually very restricted in its ability to pay anything meaningful.

This is an area where good advice and understanding of different policy conditions can make the difference between wasting your money on insurance that will never provide a meaningful benefit, or getting something worthwhile.