Ever wondered how you’d pay your mortgage or credit-card repayments if you lost your job? While there’s no such thing as fail-safe redundancy cover, there are some ‘redundancy insurance’ policies that might help you. But, be careful what you buy – they might be able to get you through a difficult time, but you might buy an unsuitable product.
What insurance policies are available ?
There are three types of insurance available if you lose your job:
- Mortgage payment protection insurance (MPPI). You might have taken out this type of insurance along with your mortgage. It typically starts to pay your mortgage repayments three months after your earnings stop and continues to pay out for up to 12 months.
- Payment protection insurance (PPI). This is sometimes called Accident, Sickness and Unemployment (ASU) cover. You might have taken out this insurance with a personal loan or credit card. It helps you keep up your loan repayments by paying out a set amount for up to 12 or 24 months. Payments typically start three months after your earnings stop.
- Short-term income protection insurance (STIP). This insurance replaces a proportion of your income for a fixed period of time (usually 12 or 24 months). It’s important not to confuse this with other income protection policies, which usually won’t pay out if you lose your job.
Because of how payment protection policies were sold in the past, you might not realise that you already have this cover.
Ask your lender whether your mortgage, loan or credit card is covered by insurance.
What would you be covered for?
You might have been paying the premiums for many years, but if you need to claim, some policies only pay out for a short period – typically for one year.
- Payment protection insurance (or mortgage payment protection insurance) generally only covers your loan or mortgage repayments, not your income. But some mortgage payment protection policies pay out an extra sum to help with other bills.
- Short term income protection insurance pays out a proportion of your income (usually 50% or 60%), rather than being tied to debt repayments.
Many policies don’t pay out immediately – there’s nearly always a gap of about three months before the payments start.
However, you should make a claim as soon as you lose your job.
When not to buy this type of insurance
Redundancy is already on the cards
Have redundancies at your company already been announced, or have there been rumours of job losses? Then it’s not worth you taking out a policy as you won’t be able to claim.
The same is true if you take voluntary redundancy – the insurer won’t usually pay out.
Check the terms and conditions carefully to make sure you’d qualify for a payout before you purchase a policy.
You work part-time, you’re self-employed or you’re on a temporary contract
If this applies to you, check carefully as many payment protection policies won’t cover you.
When should you consider buying it
- You’re in a job where the likelihood of redundancy is medium to high but more than three to six months away.
- You don’t think you’ll find another job within three months of redundancy.
- You know the policy is only going to cover your payments for 12 months after a 1-3 month waiting period and you’re happy with that.
- You understand all the exclusions.
- You’re willing to shop around for the best deal – it’s important to never buy it automatically from your loan or mortgage provider.
