What this type of cover is for
Redundancy and unemployment cover — often sold as standalone redundancy insurance or bundled into an Accident, Sickness and Unemployment (ASU) policy — is designed to replace part of your income for a limited period if you're made involuntarily redundant, or become unable to work due to accident or illness. It's typically bought to protect mortgage or rent payments and other essential bills during a gap between jobs.
ASU policies pay a monthly benefit, usually a percentage of your normal income up to a cap, for each of the three insured events — accident, sickness, or unemployment — though some policies only cover one or two of these.
What's typically covered
Most policies pay out if you're made compulsorily redundant through no fault of your own, after a deferred (waiting) period, and for a maximum benefit period. Common structures include:
| Feature | Typical range |
|---|---|
| Deferred period | 30 to 90 days after the event before payments start |
| Benefit period | Usually 12 months maximum per claim, sometimes 18 or 24 |
| Monthly benefit | Often 50-70% of gross income, subject to a maximum |
Common exclusions
These policies are more restrictive than people often expect. Typical exclusions include:
- Voluntary redundancy or resignation
- Redundancy where you had prior knowledge of the likelihood of job losses before taking out the policy (insurers usually require a minimum period, often 90-120 days, of "no knowledge" before cover starts)
- Self-employed workers, company directors, and contractors — most ASU policies are designed for employees only
- Being within a probationary period or having less than the minimum required period of continuous employment
- Dismissal for misconduct
- Pre-existing medical conditions for the sickness element
Given how many circumstances are excluded, it's essential to read the policy wording carefully before assuming you're protected.
Check your employer entitlements first
Before buying cover, it's worth understanding what you're already entitled to. Statutory redundancy pay applies if you've worked for your employer continuously for two years or more, and is based on age, length of service and weekly pay (capped at a level set each tax year by the government). Roughly: half a week's pay for each full year under 22, one week's pay for each full year aged 22-40, and one and a half week's pay for each full year aged 41 and over, up to a maximum of 20 years' service. Many employers also offer enhanced contractual redundancy pay above the statutory minimum, plus a notice period (worked or paid in lieu) that provides additional income before any gap begins.
Insurance vs an emergency fund
ASU and redundancy cover can be relatively expensive for the level of protection offered, and claims are often disputed on technicalities like prior knowledge of redundancy. For many people, building and maintaining an emergency fund of three to six months' essential expenses in an easy-access savings account offers more flexible, unconditional protection — it isn't restricted by exclusions, deferred periods or a cap on how many times you can claim. The trade-off is that it requires discipline to build up and doesn't top itself up the way an insurance payout might exceed your own savings in the short term.
A sensible approach for many households is a mix: rely on statutory and contractual redundancy entitlements and a modest emergency fund as the first line of defence, and only add insurance if your circumstances (a large mortgage relative to income, or being in a sector prone to sudden job losses) make the extra premium worthwhile.
Claiming benefits if you lose your job
If you're made redundant, it's worth checking eligibility for Universal Credit and New Style Jobseeker's Allowance, which can provide interim income support, particularly if any insurance payout is delayed by a deferred period. These are separate from, and unaffected by, an ASU policy payout in most cases, though Universal Credit is means-tested and takes savings and household income into account.
Key takeaways
- Redundancy and ASU cover only pays out for specific, involuntary events and comes with several exclusions worth reading carefully
- Prior knowledge of redundancy before you buy a policy will typically invalidate a claim
- Self-employed workers and those in short-tenure or probationary roles are usually excluded
- Check statutory and contractual redundancy pay and notice entitlements before assuming you need extra cover
- An emergency fund is more flexible than insurance and may suit many households better, though a mix of both can work well