Ever since COVID-19 struck, we’ve fielded several questions about redundancy cover. Most often, people ask whether it’s included in their income protection cover, and unfortunately, it usually isn’t – these are almost always two completely separate policies.
Now, more than ever, it’s important to know what your insurance policy covers you for. With that in mind, we’ve defined both income protection and redundancy insurance and explained the difference between the two. So, read on to find out the difference between the two.
If you get made redundant and meet the conditions of your policy, redundancy insurance will pay out a given monthly sum (usually a percentage of your salary) for a set period of time to help you support yourself until you find another job.
Redundancy insurance used to be a very popular product in New Zealand before the Employment Act made it more difficult for employers to let their employees go. Nowadays, it’s relatively rare and will never be included in your income protection insurance policy by default (although in some cases you may be able to choose to add it on as an extra).
We usually don’t recommend that clients purchase income protection insurance. The fact is, it’s often better to protect yourself by negotiating a good redundancy package at the start of your employment and/or negotiating with your employer once they’ve broached the topic of redundancy with you. More on that soon.
Income protection insurance
Income protection insurance will cover a percentage of your salary if you’re unable to work due to serious injury or illness. It won’t cover you if you’ve been made redundant.
As a rule of thumb, you should always insure against events that would ruin you financially (or be extremely stressful). For that reason, if you’ve got a mortgage, kids, a business and other financial responsibilities, we recommend you consider income protection insurance.
What can I do if I’m made redundant?
Thousands of Kiwis have been made redundant over the last couple of months. We know that this can be extremely stressful, but it’s always best to approach the problem with a positive and proactive mindset. Right off the bat, there are a few things you should do when your employer broaches the topic, according to the experts at the People Project:
- Prioritise self-care and your mental wellbeing to make sure that you’re feeling OK during this stressful time. Ask for help from friends and family if you need it.
- Get advice from an HR or employment law expert to make sure you know what your options are.
- Negotiate with your employer if your redundancy hasn’t been confirmed yet. It’s worth suggesting anything that may help you remain employed, including:
- Reducing hours.
- Reducing pay.
- Switching to another role.
- Look to the future if your redundancy has already been confirmed. Ask your current employer for any support they can provide, negotiate your notice period and start looking for your next position.
In these hectic times, it’s essential that you’ve got the insurance that you need, and that you understand exactly what your policy covers. If you’re unsure, our expert advisors offer a free comprehensive insurance review – we’ll review your cover, let you know what you’re missing and suggest the best possible products for your situation.
Drop us a note or give us a call to get started.