What is the difference between redundancy protection insurance cover and Unemployment protection insurance cover?

Some people get confused between unemployment and redundancy protection insurance, and many think they are the same thing. This is mainly because of the way that product providers name their products. For instance, you may have heard of ASU insurance, which is Accident, sickness and unemployment insurance. Have you heard of Accident, Sickness and Redundancy insurance? I doubt it, and yet ASU is really about covering redundancy.

To understand the difference between the two types of protection, you need to look at what kind of people they are covering. Say you are working for an employer; you can become unemployed for a few reasons. You could resign, and not find another job, or you could be fired for gross misconduct, and not find another job, you could take voluntary redundancy or you could be made involuntarily or redundant, and not find another job.

If you resign, or are fired for gross misconduct or take voluntary redundancy, you are not covered by insurance, as the 1st and 3rd option are your choice, and the second could have been avoided. Insurance by its nature covers you for occasions that you can't control, and the above you could. Involuntary redundancy can't be controlled, and so that is what you are covered for. This is redundancy protection insurance. You are covered as long as you didn't know that you were going to be made redundant when you took out the policy, and you accept a period before you get paid out on after you took out the cover (with your premium shrinking the longer this deferment period).

Unemployment protection insurance is a different matter, as it related to those who are self-employed. These people, by the nature of their jobs cannot be made redundant, but can become unemployed if they are unable to find work and have to wind up their business. This is the main difference between redundancy protection insurance and unemployment protection insurance.

It has been vital for people to consider either unemployment or redundancy protection insurance since in 1994 when the then Chancellor announced measures to reduce the dependence upon the state for mortgage payments of those who are unemployed. From April 1995 anyone who was unemployed with a mortgage got no financial assistance for the first two months and only 50% of the interest for the next 4 months. From October 1995, new borrowers received no benefits from the state for the first nine months.

Unemployment or redundancy protection should be an essential part of anyone's financial planning, in particular those with dependents and without a great amount of savings. You never how long you could be out of work, so even having savings may not be enough.

 

 

 

 

© AskFinancially.com 2008

Unemployment

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