Many people who specifically buy Income Protection in the form of redundancy insurance, do so because they have become concerned about their job with their current employer.
They will often explain their situation at the time they purchase a policy and ask if their claim would be paid if they were made redundant. As Bob Cook of leading on-line insurance provider Best Income Protection explains, “This can be a difficult question to answer.
“Firstly it is simply not possible to asses a claim before any claim has been made” Bob says, “each claim will have its own set of unique circumstances which will need to be assessed by the insurers own underwriter. We do of course give our customers an understanding of the issues they need to consider, so they can make a decision whether the unemployment insurance we offer is suitable for their needs.
“We tell them it all comes down to the difference between what they think and what they know. We often use the example of a group of employees informally discussing the business over a cup of tea. It may well be the case that during the discussion they reach the conclusion that the business isn’t doing too well and they think redundancies could be likely in the future. If they then purchase redundancy insurance because they have unconfirmed concerns that redundancies are likely, then in that scenario a claim should be paid. However if they are buying a policy because either there has been an official announcement that redundancies are likely, or they have access to the companies plans, for example they work in Human Resources or if the information is in the public domain, then a claim for redundancy is likely to fail”.
All new redundancy insurance policies have an initial exclusion period of typically 120 days. This means that if in the first 120 days after buying the policy you are made redundant or your company starts a consultation period, or you are officially told your job is at risk, then your claim will not be paid. If the announcement is made during the 120 day exclusion period but the redundancies don’t take place till after the 120 day period has expired, your claim still won’t be paid.
It is worth remembering that you don’t have to be told by management that your job is at risk. If it is reasonable for you to know the risk exists your claim will not be paid. Rhoda Lawrence from customer support at Best Income Protection explains “When Woolworths announced they were closing at the end of 2009, a number of employees called trying to buy redundancy insurance. They said that because they hadn’t been directly told by management that their job was going they could buy a policy. I explained to them that as the announcement had featured heavily on TV, radio and the press, it was reasonable for the insurer to feel that the employees knew they were gong to lose their job, and therefore they were not eligible to claim. In any case, the conditions around the exclusion period would have prevented them from claiming. Obviously we didn’t sell them a policy.
As Bob Cook further explains, for all the reasons above “The best time to buy redundancy insurance is now” !