Does Income Protection Insurance Cover Redundancy?

Losing your job can be a nasty shock, especially if you’re one of the 46% of Australians^ with only a month or less of savings. For many people, unemployment benefits won’t cover their living expenses. Income Protection insurance, if you’re eligible to claim, may replace up to 70% of your income lost when you’re unable to work due to illness or injury. Many people wrongly assume it also covers you for income lost when you’re involuntarily unemployed. In fact, many income protection products do not cover redundancy.

Redundancy cover and Income Protection—what’s the difference?

Income Protection insurance may provide you with regular monthly payments that can be used towards payment of household expenses, such as home loan repayments, childcare, groceries and utility bills if you’re off work due to illness or injury for an extended period of time. It’s designed to give you peace of mind while you focus on getting better.

With TAL Income Protection you’ll receive up to 70% of your monthly income to a maximum of $30,000 a month, either for a set period of time—for example 1,2 or 5 years—or until you reach a certain age, such as 65. Each insurance company will have different applicable terms and conditions with respect to the maximum benefit amount, applicable benefit periods and age limits. Income Protection Insurance also will be subject to exclusions (which may result in a claim not being able to be paid). Please refer to the applicable Product Disclosure Statement (PDS) for further information to make sure that it suits your individual needs and circumstances.

Redundancy insurance cover is another type of insurance that provides short-term financial assistance if you lose your job involuntarily, or if you’re self-employed and your business becomes insolvent. Typically, policies will pay you up to 85% of your pre-tax income, up to $3,000 per month, for up to 3 months. It generally does not cover voluntary redundancy—for example, if you resign or opt to take a redundancy package.

While most Australian insurers do not offer redundancy cover, some may include it as an optional extra (sometimes called ‘involuntary unemployment cover’) within Income Protection. If you’re considering taking out redundancy cover as an option with Income Protection you should always read the relevant Product Disclosure Statement (PDS) to make sure that it suits your individual needs and circumstances.

How Income Protection Insurance can help—some examples*

Jill

Plan: TAL Income Protection Focus
Waiting period: 13 weeks
Benefit period: 2 years

Jill was a 50 year old bank manager with a big mortgage and three sporty kids under 12 when an unexpected stroke left her partially paralysed and totally unable to work in her own occupation.

Her savings carried her through the first 17 weeks (13 week waiting period + 4 weeks—benefits are paid monthly in arrears) until her first monthly benefit payment arrived.

Jill’s recovery was a long, painful process, but she was relieved to have the financial support of the monthly benefit payment, which helped with school fees and mortgage payments, minimising disruption to her family, so she could focus on her recovery.

Luckily for Jill, she was ready to return to work before the end of her 2 year benefit period. 22 months and six days after her stroke, Jill returned to her old job, where her staff welcomed her back with balloons and cake.

Albert

Plan: TAL Income Protection Extend
Waiting period: 8 weeks
Benefit period: Until age 65

Albert was a 50 year old high school teacher and single parent who loved hiking and camping with his teenage son when he was hospitalised with serious injuries from a car accident which left him totally unable to work in his own occupation.

Albert has no family to support him, so the consequences financial might have been devastating.

For the first two years Albert received a monthly benefit which helped with mortgage payments and household support while he was incapacitated.

After two years he switched from his own occupation to any occupation. Given Albert’s education and experience, he was able to work in another occupation, and was eligible to receive the Partially Unable to Work Benefit. The support Albert received helped him get back on his feet and embrace his love of the great outdoors again.

*Source: Income Protection Insurance | TAL 

How Income Protection supports financial security

As these examples show, unexpected illness or injury could have long-term financial consequences. Income Protection is a life insurance product that may provide a regular benefit payment to keep you and your loved ones financially afloat while you get back on your feet and back to work.

Whether you purchase it direct from an insurer, through a financial adviser, or through your super fund, Income Protection offers the reassurance and peace of mind that comes with knowing you’ll have a monthly income to help take care of your daily living expenses.

Importantly, this payment can be spent on whatever you choose, giving you the flexibility to use it for whatever is most important to you, whether it’s paying the mortgage or keeping up with the bills.

Conclusion

Redundancy cover is an insurance product that might be difficult to find in Australia. While a small number of insurers may offer it as an optional extra as part of an Income Protection policy, most insurers don’t include it.

In contrast, Income Protection offers a valuable financial safety net if you’re unable to work due to illness or injury, providing you with a monthly benefit that replaces lost income, and offering peace of mind for you and your loved ones.

^ Savings account statistics 2024 | Finder

DISCLAIMER
Any financial product advice is general in nature only and does not take into account any person’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for any person should be considered, having regard to those factors. Persons deciding whether to acquire or continue to hold life insurance issued by TAL should consider the relevant Product Disclosure Statement (PDS). The Target Market Determination (TMD) for the product (where applicable) is also available. Life insurance issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848.