Will My Income Protection Policy Pay Out if I am Made Redundant?

Information verified correct on February 10th, 2016

Key Facts

  • Redundancy Cover is only available on some general insurance products.
  • Income protection plans have other features to assist redundant workers.

Income Protection and Redundancy

Income protection provides up to 75% of someones regular income in the event that they are unable to work due to sickness or illness.

Benefit Paid for Redundancy?

Income Protection Insurance from life insurance companies does not offer a benefit payment if the policy holder is made redundant. There are some policies available that will waive the policyholders premiums if they are involuntarily unemployed for a certain period. It is also possible to have mortgage repayments covered by the insurance provider if the insured is made redundant.

There are some income protection policies available from general insurance providers that will provide some benefit payment for involuntary redundancy. These types of policies should be viewed as basic insurance cover and policy applicants should have a clear understanding of the policy exclusions before submitting their applications.

It is only natural that those who are worried about being unable to work and earn their living through no fault of their own will want to protect themselves and enjoy the peace of mind that should they find themselves in such a situation they can still get at least a portion of their income whilst they get back on their feet. With this in mind, many people in Australia consider income protection plans in order to protect themselves against the financial downfalls of illness, injury or redundancy. However, what many do not realise is that income protection cover from life insurance companies does not payout in the event of redundancy. In comparison to general insurance companies, it is actually illegal for life insurance companies to provide a benefit payment after a policyholder has been made redundant. This cover is only designed to payout in the event of sickness or injury that stop you from working and earning, which means that if you are made redundant you will not be able to claim on your cover.

Income Protection Features that Offer Assistance During Involuntary Redundancy

Please note that no monthly benefits will be payable for income protection insurance if you have been made redundant or are unemployed. However, some insurers may provide support by providing coverage for your loan repayments and/or waiving your premiums for a specified amount of time when you are unemployed and actively seeking work.

As stated previously, there are some policies offered from Australian providers that give policy-holders assistance under certain events.

Unemployment WaiverIf policy has been in force continuously for a set period preceding involuntary unemployment of a certain number of consecutive working days, premium and policy fee waived for a defined number of months at a time for the period policy holder is involuntarily unemployed and registered with an approved employment agency.
Unemployment BenefitIf the life insured becomes involuntarily unemployed for reasons other than illness or injury, provider will pay the minimum mortgage repayments while the life insured remains unemployed for a set period of time.

Which Australian Insurers Provide Support for redundancy on their Income Cover?

Beware of Income Protection Policies Offering Protection From Being Made Redundant

The reason why many people are under the impression that they will be able to claim on their income protection plan in the event of redundancy is because this is what they have read online. However, whilst you will read a lot about income protection plans that cover against sickness, injury and redundancy online, you will find that this is for overseas plans such as those available in the USA or the UK, where income protection cover does generally protect against involuntary redundancy in addition to sickness and injury. In Australia, this is not the case and you will only be covered against sickness and injury and not involuntary redundancy. This confusion sometimes leads to Australians taking out income protection cover and thinking that they are covered against redundancy as well, which can lead to a real shock in the event that policyholders are made redundant and then realise that they cannot make a claim.

In short, Australian income protection from life insurance companies does not cover you for things such as involuntary redundancy, having to give up work to care for someone full time, being fired, or being unable to work and earn your living for any other reason than sickness and injury. You should think of Australian income protection plans more as sickness and injury protection plans, as this is what they will actually cover.

Of course, it is still an invaluable cover to have, as none of us know if and when sickness and injury may strike, and if they are debilitating enough to stop us from working and earning a living, this could cause a huge problem in terms of finances on top of everything else. The last thing you want to be doing if you are trying to get over a debilitating illness or injury is worrying about finances and with income protection cover in place, this is one less worry for you to have to cope with, enabling you to focus on your recovery and get back on your feet.

Involuntary Redundancy Insurance from General Insurance Providers

As mentioned previously, there are a number of general insurance providers in Australia that offer a benefit payment in the event of involuntary redundancy. While this can be an appealing feature for many, it is important for applicants considering this type of policy to consider the common requirements.

  • Policy must have already been in force for a defined period.
  • Policyholder must prove that their redundancy was in no way related to their own performance.
  • Policyholder must be continuously employed for a defined period prior to lodging a claim.
  • Benefit is only paid after a defined period of time from which policyholder has been made redundant.
  • Policyholder can have no stream of income during this period whatsoever, this may include part-time or casual work.
  • Limit on benefit payment and benefit period. Usually about $3,000 each month for up to three months.

Despite these restrictions, these general insurance income protection insurance policies can still provide an adequate level of protection for people with certain financial needs. It is important for anyone considering these types of policies to not base their decision purely on an unemployment feature. Always consider the policy exclusions and the other features available.

Apply Online for Involuntary Redundancy Cover

As stated previously, it is essential when comparing different policies offering redundancy cover online to take the time to carefully examine the conditions for payment. Not all websites promoting the policy will feature its product disclosure statement and may only cover the key benefits. A qualified insurance consultant should clearly explain the different policy features to you and assist you throughout the application process by helping you gather and complete all the necessary paperwork and submit it on time to the insurance provider. Before applying all applicants should ask themselves the following questions;

  • How much cover do I need for my situation?
  • How may my situation change into the future? Consider changes to income, new financial dependents and the arrival of other financial obligations.
  • Consider any benefits that you may be provided with in the event of involuntary redundancy. Would these benefits provide sufficient financial help while you look for new employment?

Who Offers Redundancy Insurance in Australia?

There are currently not many providers in Australia offering full redundancy cover in Australia though this may change with the arrival of more general insurance providers giving applicants this option.

General Insurance Providers

As stated previously, there are a number of General Insurance providers with products that will offer cover for redundancy in Australia. Virgin Money has just launched its Income Protection policy that offers an Unemployment Benefit.

Insurance Companies

Both Comminsure and OnePath/ANZ feature income protection policies that will provider cover for loans that current customers currently hold with them i.e. mortgages or personal loans.

There are also a number of insurance providers that will offer a premium waiver for involuntary redundancy to ensure you can maintain your policy during unemployment but not be weighed down by payments. This will usually only be offered for a maximum period of time.

Conclusion: Evaluate the Terms and Conditions of Any Involuntary Redundancy Insurance Policy

When it comes to cover for involuntary redundancy, its essential that all applicants consider its true value for their situation. It is vital to have a clear understanding of all the conditions for a benefit payment. While it may provide excellent support during this period for some policyholders, others may feel that it is not worth what is being paid in premium payments.

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6 Responses to Will My Income Protection Policy Pay Out if I am Made Redundant?

  1. Default Gravatar
    Jenny | July 21, 2014

    I became ill during February this year, used up all my sick leave and annual leave, and still off work now. I was made redundant on 30th June. As I started a claim with my Superannuation policy for Temporary Disability Insurance, do I need to declare my redundancy payout as part of my income for the insurance company?

    • Staff
      William | July 22, 2014

      Hi Jenny,

      Thank you for your enquiry. In regards to whether or not you are required to declare your redundancy payment, it will come down to the conditions outlined in your policy. It is possible that your insurer will offset any earnings received while under claim, this appears to be the case for income protection provided through superannuation. You may wish to contact your insurance provider directly to clarify this.

      Thanks again for your enquiry and all the best.

  2. Default Gravatar
    joseph | June 3, 2013

    if i know that my job will be made redundant in to months,can I still apply for insurance to cover my wages

    • Default Gravatar
      Robert | July 20, 2013

      I am buying an investment home and looking for insurance which covers me for mortgage payments and accident/sickness with unemployment cover with cover for any long term illness

    • Staff
      Claude | July 22, 2013

      Hi Robert,

      We are not in position to give you personal advice and unfortunately, we are not able to provide you with a recommendation on a specific life insurance product that is suitable to your needs and circumstances.

      However, you may wish to consider the following life insurance options:

      1. Life Cover, with Trauma and/or TPD rider
      With this policy, you will be covered in the event of death and terminal illness (death cover), as well as if you are suffering from a specified life-threatening medical event (trauma cover) and/or if you have been rendered permanently disabled, in which you are unable to work again (TPD cover). The benefit you receive can be used to cover mortgage payments and any other ongoing financial commitments. This cover, however, does not cover unemployment or involuntary redundancy.

      For more info, refer to the following:

      2. Income Protection
      Income protection insurance is designed to provide a replacement income generally of up to 75% should you be unable to work temporarily due to an illness or injury. You will receive monthly benefit payments that you can use to cover mortgage repayments and keep on top of other daily living expenses. To cover any long-term illness, you may wish to consider income protection policy with a longer benefit payment or opt for lump sum benefit payment feature (at an additional cost) in the event of a total and permanent disability. This feature may vary between providers.

      Income protection does not provide a payout if you are made redundant; however, some insurance provider offer optional feature in a form of premium waiver, premium freeze, and loan repayment cover (with a financial institution associated with the insurer).

      For more info:

      3. Mortgage Protection Insurance
      Mortgage protection is a simple life insurance plan, designed to provide cover for your mortgage repayments in the event of death, involuntary unemployment, temporary and permanent disablement. With mortgage protection insurance, you will continue to receive your benefit payments of up to 24 months. This period will also vary between providers.

      For more info, refer to: http://www.lifeinsurancefinder.com.au/insurance-types/mortgage-protection/

      If you are looking for some additional assistance in finding a life insurance policy to match your needs and personal situation, submit your details on the enquiry form to request a call back. Our experienced insurance advisers will be able to help you with your enquiry, with no obligation to sign up for cover.

      Hope this helps and we wish you all the best with your enquiry.

    • Staff
      Claude | June 18, 2013

      Hi Joseph,

      Thank you for your enquiry.

      Income protection may be able to provide some support if you have been made redundant, with a premium waiver, or loan repayment benefit. These benefits will only cover you for a limited amount of time, usually up to 3 months, provided that you are actively seeking new employment.

      Most insurance providers may include a provision on your policy before you are able to take advantage of these features. For example, some insurers may require you to have the policy enforced for at least 3 months from the commencement date of your cover before you are eligible to claim for these benefits. These provisions may also vary between providers.

      This means, you can still apply for income protection cover; however, there may be some restrictions in accessing features that can provide financial relief at time of unemployment.

      You may wish to speak to one of our insurance consultants who can provide further assistance, with a tailored advice on your enquiry. Fill in your details on the form above for a call back.

      Thank you.

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