Income Protection and Redundancy for Australian Employees

Published: April 25, 2018

Each year, 2.3% of Australian workers are made redundant because of corporate downsizing and closure (Back to Work Australia report 2016). If you feel your job is vulnerable to restructuring and you’re searching for ways to protect yourself and your family from financial uncertainty, then review your options in the below article.

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Redundancy occurs when an employee loses their job because the employer no longer requires the job to be done or can no longer pay their wages and entitlements. The job itself becomes redundant, not the employee.

According to the ATO, a genuine redundancy occurs when the employee’s job is abolished, meaning the employer has decided that the position no longer exists, and employment is terminated.

Redundancy can happen when a business:

  • Restructures or reorganises because of a merger or takeover
  • Relocates interstate or overseas
  • Introduces new technology that replaces certain jobs
  • Bankruptcy or insolvency
  • Cut’s back on work due to lagging sales or production

While the negative impact of redundancy cannot be downplayed, there are things you can to protect yourself in such an event.

Does income protection cover loss of job?

No. Generally, income protection insurance does not cover redundancy or involuntary unemployment. Most Income protection policies in Australia provide a monthly benefit of up to 75% of your salary, to cover the loss of income due to sickness or injury and not because of involuntary employment.

Such a benefit allows you to recover without having to worry about day-to-day living expenses, mortgage or rental payments and other costs.

However, select insurance companies do provide a certain income protection policy that helps you cover loans and mortgage payment for a certain period if you are made redundant.

Companies providing income protection for redundancy in Australia

In Australia, there are strict laws regarding the type of companies that can offer income protection insurance including redundancy. CommInsure and OnePath provide an unemployment benefit to those that have their mortgage or debts provided by the Commonwealth Bank or ANZ, respectively.

Commonwealth Bank Redundancy Insurance

CommInsure, the Commonwealth Bank’s (CBA) insurance division, offers an unemployment benefit as part of their income protection cover.

CBA’s income protection redundancy benefit pays 1/30th of your monthly benefit for each day of unemployment if:

  • You were made involuntarily unemployed
  • You have a loan with the Commonwealth Bank
  • You were employed for at least 180 consecutive days prior to unemployment
  • You remain unemployed for at least 60 consecutive days

The benefit will cease to be paid when:

  • You no longer have a loan
  • When you become employed again
  • When the benefit has been paid for 3 months
  • If you receive a TPD, terminal illness, trauma or other benefits under an income protection policy or any other insurance policy
  • The policy ends
  • The cover expiry date is reached
  • If you pass away

OnePath unemployment benefit

OnePath, the insurance division of the ANZ Bank, offers an unemployment benefit as part of their OneCare policy.

The unemployment benefit pays your minimum loan repayments on your home, investment, business, personal or margin lending loans from the ANZ Bank. It pays a maximum of $5,000 per month for a maximum of three months.

Criteria:

  • The loan must be with ANZ
  • You must become involuntarily unemployed
  • You must remain unemployed for at least 30 days
  • You must be registered with an employment agency and be seeking work
  • You must have been employed for at least 6 consecutive months prior to unemployment

You can only make one claim under this benefit every 12 months and a maximum of three claims over the life of your policy.

When will income protection insurance for redundancy not pay out?

Your policy will not pay a redundancy claim if your unemployment is a result of:

  • Sickness or injury,
  • Poor job performance,
  • The loss of qualifications or license,
  • Seasonal employment,
  • Voluntary redundancy,
  • Contract ending, or,
  • The completion of a task or project.

Other ways to protect your income against unemployment

In general, income protection policies do not cover job loss. Alternatives in supporting your lifestyle and family when you lose your job, might include:

Whether redundancy or mortgage protection insurance is worth it for you depends on the type of job you have and the risk of it being made redundant.

What is redundancy insurance?

Income security insurance is available from a small number of general insurers in Australia and provide a specific amount for a set number of months, should you lose your job due to involuntary employment. Redundancy insurance, also known as unemployment cover, will usually pay a monthly benefit of 50% to 85% of your regular income for three months, depending on your insurer.

How does involuntary unemployment cover work?

If you purchased redundancy insurance in Australia and lose your job, you’ll be paid a monthly benefit, usually up to three months, after a pre-agreed waiting period.

Waiting periods for redundancy insurance in Australia

Redundancy waiting periods vary from company to company. Some start when you register with an appropriate employment agency or on the first day you are unemployed, whichever comes first. Other companies require you be unemployed for at least 30 to 90 days before your redundancy benefit kicks in.

Who can get loss of employment insurance?

To be eligible for redundancy insurance, you must fulfil some general criteria, including:

  • Be between the ages of 18 and 60
  • Be a full-time employee, not self-employed or a contractor
  • Work at least 20 hours per week
  • Unemployed for at least 28 days, depending on your insurer
  • Been employed for at least 6 consecutive months

How to claim a redundancy benefit

If you purchased involuntary unemployment cover 6 months before you lost your job because of restructuring or company liquidation, you can claim the benefit by:

  • Completing the required claim forms.
  • Meeting the insurers definition of “involuntary unemployment”. Each insurer’s definition will be different, so it’s important to carefully read their product disclosure statement (PDS).
  • Providing proof of unemployment and that the reasons were for redundancy and not poor employee performance.
  • Showing you were not receiving any other form of income, including for part-time positions.
  • Proving you were employed full time at the same company, usually for longer than 6 months.
  • Providing evidence that you are currently genuinely looking for new employment by registering with Centrelink or another recruitment agency.

If you need money to cover your expenses during an extended leave from work due to sickness or injury, you can bridge the gap with Income Protection Insurance.

Compare redundancy insurance providers in Australia

  • AAMI Bill Protect

    If you’re working more than 20 hours per week, you can choose to take out a redundancy benefit in addition to your AAMI disability benefit. Receive monthly benefits from $1,000 up to $4,000 for a maximum of 3 months.

  • ANZ income protection redundancy

    ANZ redundancy can only be taken with their Living Expenses Cover and pays up to $4,000 per month for a maximum of 180 consecutive days.

  • Insuranceline Income Protection with Involuntary Unemployment Cover

    Available at an extra cost, and pays 85% of your income, up to $3,000 per month, for 3 months. Only available to permanent employees working 30 hours per week.

  • NIB optional redundancy cover

    For an additional fee, you can get 85% of your income, up to $3,000, per month if you worked for at least 30 hours per week.

  • NRMA Income Protection

    If you were permanently employed and working for 30 hours or more per week and are now without gainful employment, through no fault of your own, and actively seeking work, NRMA might provide a monthly benefit for a specified period.

  • Suncorp Bill Protect with optional redundancy benefit

    Suncorp provides cover for up to $4,000 a month, for 3 months, to help cover the bills and mortgage payment if you become involuntarily unemployed. You are not able to claim for the first 6 months of your policy commencing.

  • Virgin income protection insurance

    Provides optional cover for involuntary unemployment for up to 85% of your income, max $3,000 per month, for 3 months.

What is mortgage repayment insurance?

Mortgage protection insurance is designed to protect people who took out a home loan from defaulting on their mortgage payments. Home loan insurance will cover the cost of your regular mortgage payments if you lose your job, pass away or become seriously ill or injured.

The cost of your mortgage repayment premiums will usually be influenced by:

  • How likely you are to become unemployed
  • The size of your loan
  • The cost of your mortgage payments
  • Your age and the date your policy is starting
  • Your chosen policy and the features you included
  • Whether the policy is purchased as single or joint cover

Generally, your policy will only payout once, so you might want to consider income protection insurance is your inability to pay is due to sickness or injury.

Be wary of income protection which includes redundancy.

When an insurer claims to protect you against unemployment or redundancy fully, it’s usually too good to be true, and they often include several criteria, as listed above.

While redundancy might be a possibility for some people, the likelihood of becoming sick or injured and unable to work can happen to anyone. If you want to protect your income and support your current lifestyle, you should have a relevant income protection insurance policy in place.

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