Protection When You Are Made Redundant
Redundancy is a money problem first, so protection tends to be looked at only as something to cut.
That instinct is understandable and usually backwards. The covers you pay for yourself are among the few things that get harder to replace the longer you go without them, because they are rebought on your health and age at the time rather than at the price you first agreed.
Meanwhile the cover you did not pay for, and may not have known you had, has just stopped.
The short answer
Redundancy ends any death in service, group life or group income protection on your leaving date, which removes cover at the point a household can least absorb a further loss. Policies you own yourself are not affected and continue as normal, so the main decisions are whether you can keep paying for them and what to put in place for the cover that has just gone.
What this changes
- Death in service ends on your leaving date, often removing the only life cover an employee had
- Any group income protection or private medical cover provided by the employer ends too
- Household income drops, sometimes to nothing, while fixed costs stay where they are
- A redundancy payment may bridge the gap for a while, which can disguise the problem
- Your own policies are unaffected and keep running, as long as the premiums are paid
- If you move into self-employment or contracting, there is no sick pay to fall back on at all
The bit people miss
The expensive mistake is cancelling your own cover to save a monthly payment during a difficult few months. A policy you hold was underwritten on your health when you took it out, and that assessment is locked in. Cancelling it and reapplying a year later means being assessed again, older, with whatever has happened to your health since, and acceptance and terms are the insurer's decision rather than yours. A premium holiday or a temporary reduction, where a policy allows it, is almost always a better conversation than cancellation. Ask before you cancel anything.
What Income Protection Does And Does Not Cover
This needs saying plainly, because redundancy is exactly when people hope it works differently.
Income protection pays out when illness or injury stops you working. It does not pay out because you have lost your job or cannot find another one. Those are different risks, and unemployment cover, where it exists at all, is a separate and much more limited product.
So income protection is not the answer to this month's problem. It is the thing that matters in the next job, particularly if that next job comes with weaker sick pay than the last one, or if you end up self-employed where there is none at all.
Before You Cancel Anything, Ask What Else Is Possible
If the premiums are genuinely unaffordable, cancelling is not the only option and it is usually the worst one.
Depending on the policy and the insurer, it may be possible to reduce the cover and the premium, to change the policy so it costs less, or in some cases to pause payments for a period. What is available depends entirely on the policy you hold, which is a reason to phone and ask rather than to assume.
The reason this is worth the phone call is that reinstating cover later is not a given. You would be applying afresh on your health and age at that point, and the insurer decides whether to accept you and on what terms. Keeping something in force, even at a reduced level, protects a decision you already made on better terms.
What usually fits, and why
Most urgent if your death in service has just ended and that was all you had. The need did not change when the job did, and a policy you own is not tied to an employer.
Worth understanding properly here. It covers being unable to work through illness or injury, not being unable to find work, so it is about the next job rather than this gap.
Pays a lump sum on diagnosis of a serious condition. Relevant because there is now no employer sick pay or group scheme sitting behind you.
Common questions
Does my life insurance stop if I am made redundant?+
Not if it is a policy you own and pay for yourself. That continues as normal while the premiums are paid, because it belongs to you rather than to your employer. What does stop is anything provided through work, such as death in service or group income protection, which ends on your leaving date.
Will income protection pay out if I lose my job?+
No. Income protection covers being unable to work because of illness or injury, not being out of work or unable to find a job. Those are different risks. It is still worth having for the next job, especially if that job has less sick pay than the last one, but it will not help with the redundancy itself.
Should I cancel my cover to save money?+
Ask about the alternatives first. Reducing the cover, changing the policy or in some cases pausing premiums may be possible depending on your policy and insurer. The reason it matters is that restarting cover later means a fresh application assessed on your health and age then, and acceptance is the insurer's decision rather than yours.
I had death in service. Do I need to replace it?+
If it was your only life cover and somebody depends on your income, then it is the most pressing gap, because it ended with the job. Group schemes belong to the employer and do not transfer. Whether to replace it depends on who would be affected, which is worth talking through properly.
Should I wait until I have a new job before arranging anything?+
There is a trade-off. Waiting avoids committing to a premium while income is uncertain, but anything that happens to your health in the meantime becomes part of your medical history, and that can affect a later application. Worth a conversation about which risk matters more in your situation.
Cover that often goes with this
The gaps we most often find sitting next to this one.