Income Protection Insurance: Does it Cover Redundancy?

While many insurance providers in other countries such as the United States and United Kingdom offer redundancy cover as part of their income protection plans, most Australian insurers do not. Income protection insurance in Australia is designed to benefit policyholders who are unable to work due to illness or injury, not redundancy.

But fear not, there are some options out there if you wish to get cover for the risk of redundancy, such as AAMI’s Income Protection plans. When shopping around, remember that the more reliable and reputable the provider is the better.

What does income protection insurance cover?

Despite not covering redundancy, income protection insurance can still be extremely valuable. If a policyholder gets injured or is too sick to work, income protection insurance can offer monthly payments in lieu of a paycheck for a given period of time.

Policyholders can cover up to 75% of their monthly salary, which means they can receive 75% of their usual paycheck for the time they are off work. This allows them to pay the bills, and not stress too much about money while they get back on their feet. Some providers will also waive premiums after a claim has been made, while benefits are being paid out.

Policyholders can often choose their benefit period (how long they will receive benefit payments), and their waiting period (how long after illness or injury they will start to receive benefits) – although different insurance providers will have different regulations around this.

Income protection redundancy features

While income protection insurance doesn’t cover redundancy or job loss, some policies can offer certain features that can help out if the policyholder does lose his job.

Unemployment Premium Waiver: If the policyholder loses his job or is made redundant, some income protection insurance providers will waive the premiums for a certain period of time.

Unemployment Benefit: If the policyholder has a home loan and income protection insurance with the same provider, some providers will cover home loan repayments for a certain period of time if the policyholder loses his job.

Can you get cover for redundancy?

Australian income protection insurance doesn’t cover redundancy, however, there are some general insurance providers that do offer a limited range of redundancy cover. These providers can offer benefit payments for a given period of time when the policyholder is out of work due to redundancy.

What is redundancy cover?

Depending on the provider, redundancy cover will provide a monthly benefit for up to three months if the policyholder becomes involuntarily unemployed, and similar to income protection insurance, it can also offer a benefit period to policyholders who are unable to work due to illness or injury.

There aren’t too many insurance providers in Australia that offer redundancy cover, and those that do may require you to have a home loan with certain financial providers.

Whatever your decision – whether you want income protection insurance or additional redundancy cover – be sure to read the terms and conditions in full, and ask the provider questions if necessary. Remember, if it sounds too good to be true, it probably is.

Is there anyone out there who has experience with income protection? Is it worth it?

Jules has been working as a freelance copywriter for the past two years, concentrating mostly on finance and travel, but covering everything from technology to outdoor adventure. You can follow her on Google+ to see her latest work.

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Jessica Miller-Merrell

Learn more about Jessica Miller-Merrell, SPHR, SHRM-SCP, the founder of Workology, a workplace HR resource, and the host of the Workology Podcast. More of her blogs can be found here.


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