Insurance

What Is Redundancy Insurance And Do I Really Need It?

Redundancy Insurance is a form of Income Protection Insurance where, if you are made redundant a percentage of your usual income will be paid to you until the payments reach the terms of your policy or you secure another job.

Redundancy Insurance differs from Income Protection Insurance as with the latter your usual income is protected if you so happen to be injured or fall ill.

Many regard Income Protection Insurance as having greater value but comparing the two insurance types is a bit like comparing apples to oranges.

Just the same each type of insurance has a definite place in the insurance industry and it is ultimately up to the prospective consumer to study all policy types and different types of income insurance and decide which is the best fit for his or her situation.

So how does Redundancy Insurance work?

This type of insurance is one of the least understood insurance types and it probably one of the newest offered by insurance companies.Redundancy effectively insures a portion of your income, (generally 75%) in the case you become redundant at your place of work.

Keep in mind if you are offered a redundancy package and your package is voluntary your are not entitled to claim on your insurance policy. Also if you have been dismissed from your workplace that is not classed as being made redundant and your policy will not pay out.

How long will this type of cover pay after I am made redundant?

Usually policy's pay for twelve months but you probably will have to provide your insurance company proof that you are actively looking for work.

You can arrange a policy which will pay you up to 24 months after being made redundant although usually such a policy will come at a premium and I would question the value of such a policy.

You may also find that some Redundancy Insurance policies will only cover you for 6 months and this may prove more practical as the premiums are more reasonable.

How much are premiums for this type of insurance?

Premiums can vary greatly from insurer to insurer and it can be difficult to compare one policy to another on price alone as no two policies will be similar.

But on average you can expect to pay up to $ 60 a month premium for a $ 2000 a month benefit which is hardly cheap when you compare Redundancy Insurance alongside other insurance types.

Although if you bundle Income Protection Insurance together with Redundancy Insurance you can generally get a healthy premium discount on both of the insurance types.

What about Self Insurance for Redundancy and Income Protection?

Self insurance is a highly effective strategy for redundancy which essentially means you allot the premiums you would otherwise pay to an insurance company into a high interest savings account and in the event you became redundant you can use this savings as your financial cushions.

The great thing about self insurance whereas Redundancy is concerned is that if you never claim on your 'self insurance strategy' you will have an extra little nest egg for when you retire.

The only downside to this strategy is that it will take at least 2 to 3 years to build up enough funds in your self insurance bank account to effective cover yourself in the unfortunate instance you are made redundant.

A good strategy is to take out an insurance policy for redundancy for 12 to 24 moths while at the same time self insure, after the twelve to twenty four month period you can cease your redundancy cover with the insurance company and continue on with your own self insurance.

Strangely enough the Self Insurance strategy is less worthwhile if you only require Income Protection type insurance or income protection together with redundancy but self insurance for both of these insurance types should be a worthwhile consideration for anyone looking at these types of insurance cover.

All in all it comes to the each person and individual circumstances as to what insurance type is best suited to your particular situation and what represents insurance value to you.

What's most important though is that you know exactly what the terms of your prospective insurance policy and how much you are effectively paying for your cover and all the possible alternatives available.

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