Is redundancy covered under Income Protection?

Is redundancy covered under Income Protection?

Its no wonder people are worried about job loss and unemployment. In February 2014, joblessness in Australia reached a ten-year high. A number of Australian industries including mining and car manufacturing, have suffered as a result of the GFC. As factories, mines and big businesses close their doors and gut their departments to reduce costs, people find themselves without work and it is easy to assume that Income Protection would cover you when you lose your job.

Does Income Protection cover redundancy?

The simple answer is no, generally Income Protection policies do not cover redundancies. Nor will you be covered if you are fired or if for some reason you have to leave work voluntarily. The purpose of Income Protection is to replace your income if you suffer a health event – a sickness, accident or injury.

But what about those policies on the TV covering redundancy?

Ah yes…I’ve seen these ads. Firstly: if you purchase any insurance product off the TV, radio or online they’re generally not good quality products, they don’t tell you the full story and you’ve probably just wasted your money.

Just my opinion.

On that note, let me take this opportunity to state that my opinion is not reflective of my licensee Aon Hewitt Financial Advice etc, etc, that some insurance is generally better than no insurance and I’m happy that people are becoming more aware of insurance products and asking more questions and taking the initiative to protect themselves. Once that hurdle has been jumped it’s time to take the next step and seek advice and get educated on the finer details of what these policies actually cover you for.

There are a few companies who are advertising ‘redundancy cover’ on TV/online as a major feature of their Income Protection offer. You can make a claim and be paid up to 3 months income if you are made redundant from a full-time job. Let’s examine this in more detail.

What are the parameters?

  • You generally need to hold this cover for at least 6-12 months before being able to exercise the redundancy benefit,
  • You need to be working at least 30 hours per week,
  • You must need to be in continuous, permanent employment for 6 months preceding the claim,
  • Wording from one of the companies: “Where your employer has given notice (including but not limited to mainstream media announcements), prior to the commencement of this benefit that the company may be offering or forcing redundancies, or that it may suspend or cease trade, any resulting unemployment will not be considered to be involuntary and no Involuntary Unemployment Benefit will be payable”. (This is literally saying if you’re made redundant no unemployment benefit is payable),
  • You can only claim if you’re between 18 and 60 years of age,
  • You cannot claim if an employer terminates your employment during a probationary period,
  • You cannot claim if you’re in a family business and your unemployment is controlled by you or an immediate family member,
  • You cannot claim as a result of poor performance in carrying out your occupation including dismissal following formal disciplinary procedures,
  • You cannot claim as a result of your refusal of any offer of reasonable alternative employment by your employer linked to your education, training and experience

The list goes on.

What about your specific Income Protection policy?

If you have Income Protection through us or through a major, specialist life insurance company there may be some sort of benefit for unemployment such as being able to claim for up to 3 months unemployment, being able to waive premiums for up to 3 months, repaying your home loan for up to 3 months

Important note: there is a difference between a specialist life insurance company and a general insurer who advertises on the TV or online. How do you tell the difference? Generally you can only obtain specialist, underwritten, high-quality Income Protection policies from specialist life insurers through an adviser like us.

Potentially, if you haven’t received specialist advice and/or your recommendation in a document called a Statement of Advice, or your policy came with your super fund, or you purchased a policy you saw online or on the TV, these will low-quality policies, have lots of terms and conditions, are not underwritten and may be held under general insurance law, which is a different standard of consumer protection. Policies like this are why people hate insurance companies.

If you’re unsure about your Income Protection policy please call us on 02 9633 5530, we’re happy to help you understand what sort of policy you have.

The key to redundancy benefits

As you can see, there are a lot of ‘ifs and buts’ in this space.

The key here is:

  • always do your due diligence
  • do the maths
  • pick up the phone and call us on 02 9633 5530 if you’re unsure on what your options are when considering purchasing an insurance product or if you have been made redundant/are unemployed.

 

This information, and any advice provided is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it.

 

Sacha Loutkovsky
sacha.l@orionfg.com.au
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