Insurance for unemployment and redundancy - by independent financial adviser John Bramwell

Redundancy, Unemployment
and Changing Jobs

Introduction

Whether you are changing jobs voluntarily, involuntarily or as a result of redundancy, there are several areas of your financial planning that need to be reviewed. These include your pension provision, family protection and housing.

Additional concerns include how to replace lost income and make the most efficient use of redundancy payments.

Redundancy

Redundancy can be quite a traumatic time. However, there are several sources of help (see our useful links). Your employer is also likely to provide you with a package of information concerning your entitlements. General information on redundancy payments and their tax treatment are available from the Department for Trade and Industry's website.

If you have recently been made redundant, you should make sure you are receiving all the benefits you are entitled to, and then you should review your family finances (income, expenditure and existing investments) to see if improvements can be made. This may mean seeking independent financial advice. Please contact us.

Redundancy payments – These payments made by your employer are intended to help your financial situation while you look for a new job or to help pay for training for a new career. How they are used depends on their size and on your circumstances. When you are settled into a new job any surplus can be invested or used to reduce your loans.

What should I think about when I am
unemployed or changing jobs?

Replacing income - Until you start a new job, replacing your lost income is a major concern. Some unemployment benefits are available, such as Jobseekers Allowance. Therefore, you should check what you are entitled to by contacting your local Jobcentre Plus office.

Savings and investments – You may need to use these while you are unemployed, and subsequently change them to reflect your new circumstances.

Mortgages and other loans - Being able to repay your loans is a major source of worry. It is much better to contact a lender sooner rather than later if you think you will have difficulty continuing with your repayments. Lenders will often help by rescheduling your loan or allowing you to delay some of your repayments.

A new job may mean a house move. Although many mortgages can now be transferred to a new property, it is always worthwhile to check all mortgage lenders to see if a better deal is available.

Protection – Some employers offer employee benefit packages. These often include death in service benefits and help when you are ill. Changing jobs or becoming unemployed can lead to under-insurance, which means your family might suffer hardship if you were to die or become severely ill. In contrast, if your new employer offers improved benefits then you may be wasting money on unnecessary protection.

Pensions – There are several types of pension scheme offered by employers. They can vary quite markedly, so you should seek independent advice to help assess the suitability of your new employer's scheme and to decide what to do with your existing schemes.

What can I do to protect myself against redundancy?

The main way of reducing the financial impact of redundancy is to ensure you build up a good buffer of savings and investments. These should be flexible with both easy access money and longer term investments (to provide better growth). Ideally you should have at least three to six months income in easy access accounts.

If you have a mortgage you can take out Accident, Sickness and Unemployment (ASU) or Mortgage Payment Protection Insurance (MPPI). This is taken out when you arrange your mortgage and will pay your mortgage premiums and some linked protection premiums while you are unemployed.