INSURANCE GUIDE
Redundancy and Unemployment Insurance UK
What redundancy and unemployment insurance covers, how it works, and how it differs from statutory redundancy pay.
TL;DR
- Redundancy insurance covers your monthly income or loan repayments if you are involuntarily made redundant.
- It does not cover voluntary resignation, retirement, or redundancy you knew about when you took out the policy.
- Statutory redundancy pay is separate and provided by your employer by law - insurance provides additional monthly income.
- Payment protection insurance (PPI) is the most common form - it covers loan or mortgage repayments specifically.
What Redundancy Insurance Covers
Redundancy or unemployment insurance pays a monthly benefit - either a fixed amount or a percentage of your former income - if you are involuntarily made redundant by your employer. The policy pays for a defined benefit period, typically 12 or 24 months, while you are actively seeking new employment. It covers the period between losing your job and finding a new one, providing income to meet essential living costs or loan repayments.
Payment Protection Insurance (PPI)
Payment protection insurance (PPI) is a specific form of redundancy cover designed to cover loan or mortgage repayments rather than general income. If you are made redundant, PPI covers the minimum monthly payment on the covered loan or mortgage for the benefit period. PPI has been historically mis-sold in the UK - the FCA found widespread inappropriate selling of PPI to customers who would not have been eligible to claim. Always check eligibility conditions carefully before purchasing PPI.
Key Exclusions
Redundancy insurance typically excludes: voluntary resignation; constructive dismissal where you resigned; retirement; self-employment ending (covered by separate self-employed income protection); redundancy from a role you knew was at risk when you purchased the policy; pre-existing mental health conditions causing inability to work; and the first 60-90 days of unemployment (standard exclusion period). Self-employed individuals are generally not eligible for standard redundancy insurance.
Statutory Redundancy Pay
Statutory redundancy pay is a legal entitlement under the Employment Rights Act 1996 for employees with at least two years of continuous employment. The amount is calculated based on age, weekly pay (capped at £643 per week as of 2026), and length of service. Statutory redundancy pay is a one-off payment from your employer; redundancy insurance provides ongoing monthly income. The two operate in parallel and are separate from each other.
Disclaimer
This guide is for general information only and does not constitute financial or insurance advice. Kaeltripton.com is not regulated by the FCA. Always read policy documents in full before purchasing cover.
Frequently Asked Questions
Is redundancy insurance worth buying?
The value depends on your financial circumstances - specifically whether you could manage an extended period without income using savings alone. Employees with mortgages, dependants, and limited savings are most likely to benefit from redundancy insurance. Self-employed workers are typically not eligible and should consider income protection insurance instead, which covers inability to work for any reason including illness.
How long does redundancy insurance pay out?
Most redundancy insurance policies pay benefits for 12 or 24 months per claim period. After the benefit period ends, payments stop regardless of whether you have found new employment. Some policies include a return-to-work benefit that pays a reduced amount if you return to lower-paid employment within the benefit period. The benefit period and any return-to-work provisions should be confirmed before purchasing.
