If you have financial commitments, such as a family to care for, debts or the rent to pay,  it’s only natural to worry about what might happen if you lose your job. The good news is there is insurance to protect against this eventuality – and it might be enough to tide you over until you find your next position.

Two employment-related forms of insurance you can take out in New Zealand are redundancy cover (available if you’re made redundant), and income protection (designed to help in the case of serious illness or injury). Here’s a brief guide to both types of insurance, and the situations in which they might be helpful to you.

Redundancy cover

Redundancy cover is designed to replace a portion of your income for a specific period of time if you’re made redundant – often three to six months. Redundancy cover is usually available to you only if you are employed full-time. Self-employed people, seasonal workers and those who are working part-time cannot generally apply for this form of cover.

One of the major differences between redundancy cover and income protection is redundancy cover is very much a short-term solution. It’s usually an add-on to other forms of insurance, such as income protection or mortgage protection. Generally, your redundancy insurance is not offset against any redundancy payment your employer gives you - in other words, you can claim both pay-outs – and you can spend your payment however you want.

If you have taken out redundancy cover or are considering it, make sure you’re aware of all the exclusions that apply in your particular policy. Some common exclusions that prevent people from claiming include:

• Resigning from your job voluntarily

• Being fired, rather than made redundant

• Being made redundant because of a labour dispute

• Being made redundant less than six months after purchasing redundancy cover

In addition, if there has been recent restructuring in your organisation, or if it's public knowledge your business or department will be downsizing soon, it may be more difficult to purchase this form of insurance. You may also find there is an age limit – people over 65 are usually unable to get a redundancy insurance pay-out.  The amount of cover you receive will depend on the plan you pick, and the premiums you are willing to pay. 

If you’re interested in this type of cover, going through an adviser to find out which packages are best for you is a great idea. Quashed can put you in touch with an experienced adviser with expertise in this field today – it’s completely free, with no obligations and no strings attached. All you need to do is sign up to our free platform.

Income protection

Income protection replaces a portion of your income (generally up to 75%) and it can be paid over a period or several months, several years - or until you hit retirement age. It’s available to most working people, including the self-employed, contractors and people who work part-time: however, if you work in a very high-risk job, such as the policy or military, you may find this kind of cover harder to get.

Income protection will cover you if you leave your job for health reasons, including common situations that aren’t covered by ACC – such as cancer, another serious illness, or a mental health condition such as depression. The level of cover you can receive is often calculated based on your income in the last three years - often, you can select a consecutive 12-month period to base your level of cover on. Before you can claim income protection, you must have exhausted your sick leave.

Common exclusions in income protection policies include:

• Leaving work for something not health-related

• Self-inflicted injuries

• Injuries or illnesses caused by alcohol abuse

• Injuries caused by criminal activity

One catch that comes along with income protection is if you do suffer an injury that is covered by ACC, you will receive the higher income amount from either provider – you cannot usually claim both. ACC covers 80% of your income as you recover, so usually ACC ends up making your income payments. For more information about ACC, take a look at our quick guide.

There may be some situations where you’re unable to return to your own profession or trade, but ACC decides you are fit to work at another job and determines you are no longer eligible for support. Your income protection policy may be helpful in this situation - if it discusses returning to your “own occupation” rather than “any occupation”, then you may still be able to claim income protection payments from your insurer.

If you’re interested in this form of insurance, providers often have information available online. For detailed advice however, you might like to speak to an independent insurance adviser. If you’ve already signed up to Quashed, you can use the Explore feature on your dashboard to read about income protection in depth.

How much will I pay?

Taking out an income protection policy is similar to taking out health insurance. The following are often factored into consideration by insurers:

• Your smoking history

• Any pre-existing conditions you have

• Your occupation, and how risky it is

• Your level of income

• Your age

• Your gender

Basically, insurers look at the possibility you might fall ill or have an accident - if you’re found to be higher risk, you will have to pay higher premiums.

Here are some examples:

A non-smoking, 35-year-old male builder who has been self-employed for three years and earns $65,000 a year, can expect to pay premiums of between $780 and $1100 to receive income protection (of 75%) for a two-year period. An employed electrician, who earns the same amount and is the same age, can expect to pay a similar rate.

However, a 35-year-old male medical doctor, also non-smoking, would only need to pay between $439 and $631. A 35-year-old employed female doctor who earns the same amount, and does not smoke, will pay between $710 and $945 a year for the same level of coverage - perhaps reflecting a higher level of burnout among female doctors.

If you’re looking at adding redundancy protection, the premiums you pay will be partly governed by:

• The waiting period in your policy.

• Your occupation (and the risk your particular skills will no longer be needed)

If you pick a shorter waiting period, you will be able to claim your pay-out earlier – but you can also expect to pay higher premiums. If you are in a field where you are more likely to be replaced, your premiums will likely also be higher.

Situations where redundancy insurance doesn’t apply

If you fall outside the net when it comes to redundancy – perhaps you’re a seasonal worker or work part-time – then building up a buffer of savings to give you time to find other work is a great idea.

If you want tips on saving, here’s a useful link: Saving - How to save & setup a savings plan » Sorted

Next steps

When you take out redundancy insurance, or income protection, be sure to upload your policies to Quashed – our free platform allows you to see all of your policies in one place. Get started today!

Once you’re signed up to Quashed, you can use our dashboard to explore different types of insurance in depth – remember to check out our quick guides to redundancy insurance and income protection on our site.  Don't forget to check out related forms of insurance - such as mortgage repayment insurance, and trauma (critical illness) insurance.