There has been a lot of headlines in the business section over the last 6 months regarding low business confidence and talk of a global recession. At this point it is just talk, but some sectors in New Zealand have slowed. Residential real estate sales are down and some construction companies have collapsed but overall the economy is continuing to roll on. However it’s probably a good time to investigate redundancy cover, what is it, how it works, upsides/downsides and do you need to consider adding it to your cover.
A common misconception is that Income Protection will cover you if you are made redundant – this is incorrect. Income protection will pay in case of illness or injury, but not if you are made redundant.
Redundancy cover is an add on to mortgage protection. If you are made redundant it will pay a monthly sum for a maximum of 6 months or until you return to work.
If you do not have a mortgage we have options so that you are still able to get some cover for your household expenses for example. You can take out ‘mortgage cover’ based on 45% of your income (and you don’t need an actual mortgage to do this).
A major consideration is the sector you work in. If you were made redundant how long do you think it would take you to get another role? If you think it may take 4-6 weeks then you probably don’t need any cover (you may be able to get by on savings), but if you think that it may take 4-5 months, then receiving a monthly payment to cover your mortgage could be vital.
With all cover it is important to understand the policy wordings. I have looked at cover for a graphic artist in the ad industry who said if he was made redundant he could pick up some freelance work until he got a new full time role. After checking the policy wordings, if you take up part time work the policy doesn’t pay, so we didn’t proceed with the cover.
Redundancy cover is very valuable when working in an industry that is shrinking. If made redundant it can take a long time to find a new role and the cover can be invaluable. Previous claims from the print and banking industry have seen clients collect the full 6 months worth of payments.
One consideration for redundancy cover is that you need to have it in place early as with most insurance companies there is a 3-6 month stand down period before the cover is valid. On the plus side, redundancy cover is easy to put in place as there are no medical questions.
If you want to discuss this further or see some pricing drop me a line or give me a call on 09 489 1059