Losing your job can have a massive impact on the financial security of you and your loved ones. Even if you work in a stable environment, there's no guarantee that things will remain that way in the future.
You may already be wondering how you'd be able to cover household living costs or debts like a mortgage. Likewise, if you have income protection insurance, you may be wondering if it could be used to support you if you lose your job.
In this guide, we'll answer whether income protection can cover redundancy and what other options you may be entitled to.
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What is income protection insurance & how does it work?
Income protection insurance is a product used to support you financially if you are unable to work due to illness or injury. It pays out between 50% and 70% of your monthly wage, tax-free, if you have been forced to stop working or signed off work by your GP.
Unlike life insurance, which pays a lump sum upfront, income protection pays out a monthly benefit. These payments can be made for as long as you need them - until you’re well enough to go back to work, until you reach retirement age, or until the policy expires - whichever happens first.
You can also claim on the policy multiple times, sometimes for the same or similar events - Check your terms and conditions, or ask your insurance adviser if you are unsure.
Income protection has a pre-agreed waiting period (‘deferred period’) before a claim can be made on the policy. This will be agreed at the time of purchase, and can have an impact on the price.
For example - Person A may have 1 month deferment period, whilst Person B has a 6 month deferment period. Person A may be more likely to make a claim, and so their premiums may cost more than Person B’s.
The price of the policy can also be affected by your medical history.
There are two types of income protection cover:
Short-term protection – which covers you for a set period of time (typically between 1-5 years). These policies are often cheaper but have a limit to how long they will pay out. After the limit has passed, you will have to return to work for at least 6 months before making a new claim.
Full-term protection – which covers you for as long as you want the policy to last, such as until retirement or death. It's more expensive but offers greater protection. You can claim on this policy multiple times before retirement.
Like all types of insurance, you're required to pay a monthly premium to your insurance provider. The cost of your monthly payments will depend on factors like how much cover you wish to take out.
What does income protection insurance cover?
Under an income protection policy, you'll be covered in circumstances where you are unable to work. For example, if you suffer from a severe illness or injury, that prevents you from being able to do your job as normal. It can even cover mental health conditions if they pose a barrier to your ability to work - including, but not limited to, depression, anxiety, stress and bereavement.
Income protection insurance does not cover redundancy, voluntary redundancy, or termination.
Why doesn't income protection cover redundancy?
As income protection is designed to cover health-related matters, whether physical or mental, it does not cover redundancy, which is an employment-related issue. Losing your job doesn't affect your ability to work; rather, your employment status.
If you wish to have protection in the event of redundancy, there are other options available to you, most notably redundancy insurance.
Is there any insurance that offers redundancy cover?
If redundancy is a primary concern, there are other financial products and strategies you might consider:
Redundancy insurance: This is specifically designed to provide income if you lose your job due to redundancy. You typically receive a percentage of your salary for a specified period, helping you manage bills and other expenses while you search for new employment. It can also be known as unemployment insurance.
We offer this kind of protection through our advised team. To find out more, or to get a quote, you can contact the team on
01392 436193
(Monday to Thursday 9am – 5.30pm, Friday 9am – 5pm)
Mortgage payment protection insurance (MPPI): This type of insurance can cover your mortgage payments if you become unemployed due to redundancy. It can help support you with mortgage repayments while your income is affected. Typically, MPPI will pay out for up to 12 months, although some policies may offer longer periods.
Please note: Cavendish Online is not authorised to discuss this policy with you since this is not a life or health insurance product.Payment protection insurance (PPI): While often associated with loans and credit cards, PPI can also cover redundancy by helping with repayments on debts if you're unable to make them due to unemployment.
Please note: Cavendish Online is not authorised to discuss this policy with you since this is not a life or health insurance product.
Will I still be covered by my employer's insurance plan if made redundant?
Any insurance policy provided by your employer, whether that be health insurance, life insurance or income protection, may not continue once your employment ends. When you are made redundant, benefits like these are typically tied to your active employment status.
In this case, you may be better suited to having your own cover as well as any employer-provided plans. As changing jobs can be a regular occurrence, it's unlikely you'll always have the same employee benefits package with each employer.
Why should I have income protection?
While it doesn't cover redundancy, income protection can still be a worthwhile purchase. Having cover can offer a host of benefits, including:
Monthly payments up to 70% of your gross annual income in the event you cannot work due to illness or injury.
Support for daily expenses, including mortgage or rent payments, utilities, and groceries, without dipping into savings.
Flexible cover where the policy lasts for however long you need it, such as until retirement
Suitable for all types of employment, including self-employment.
Peace of mind for your loved ones in the event that something happens to you.
As this policy can be a little more complicated to navigate than life insurance, we recommend getting advice to understand what cover you need.
You can get a quote and apply for income protection by consulting with one of our knowledgeable protection advisers over the phone.
There are no upfront costs to receive expert advice and your personalised income protection quote.
Call the Cavendish Online team today on
01392 436 193
(Monday to Thursday 9am – 5.30pm, Friday 9am – 5pm)
