In uncertain times, redundancy cover might seem like a smart solution – a financial safety net in case of job loss. But will it be enough to protect your lifestyle?
With restructures and job cuts becoming more common in today’s high cost-of-living environment, it’s important to think long term and have a plan in place that safeguards your financial future. After all, you’ve worked hard to build a life you can be proud of – your career, your home, your investments, and your money. In this article, we’ll explore:
- What redundancy cover is and how it differs from income protection
- What to do if redundancy cover isn’t right for you
- Practical steps to take if you’ve already been made redundant
What is redundancy cover?
Redundancy cover is a type of insurance that provides short-term relief in the event you lose your job due to redundancy. It’s often offered as an add-on to your income or mortgage protection insurance.
Unlike Income Protection insurance, Redundancy cover only protects you if you are made redundant. Income Protection is there to bolster your financial situation if you can no longer work due to illness or injury.
Do I need redundancy cover?
For many Kiwis, redundancy becomes a reality at some point in their working life. If your lifestyle depends heavily on your income, redundancy cover may be worth considering. But it’s important to understand its limitations:
- Offered by only a few providers, and only as an add-on to income or mortgage protection insurance
- Usually pays out for maximum period of 6 months
- Premiums increase with age
- Cover typically excludes voluntary redundancy
- Wait period is typically 4 weeks
- You must be employed for at least 6 months before you’re eligible
- Some industries are excluded altogether
When might redundancy cover be a good fit?
While redundancy cover has its limitations, it still might be a good option if:
- The fear of job loss is causing you ongoing stress. However, just note that if you know redundancy is coming your way, you won’t be eligible for redundancy cover.
- A loss of income would significantly impact your ability to meet essential expenses.
Everyone’s situation is different. A financial adviser can help you weigh up the costs and benefits and decide whether redundancy cover suits your needs – or whether there may be better ways to protect yourself.
What if redundancy cover isn’t right for me?
Redundancy cover might not be the solution for everyone and with its limitations it still pays to have a plan that builds your financial resilience.
- Build an emergency fund
An emergency fund is a financial buffer that can soften the blow of unexpected setbacks. Start by aiming for at least 3 months of expenses to give yourself breathing room if your income suddenly stops. - Review your expenses
If saving feels tough, reviewing your current expenses may help you create a savings surplus. Look at your spending — what can be paused or cut temporarily? Think: streaming services, dining out, subscriptions. - Maintain job readiness
Even if you feel secure in your job, it pays to keep your CV updated. If your role gets disestablished or a new opportunity appears, you’ll be ready. Preparation reduces stress and keeps you proactive.
What if I’ve already been made redundant?
We understand that experiencing redundancy can be a stressful time for anyone. The first step in this situation is to take a pause and allow yourself to process what has happened. Doing so will help you get into the right headspace for making big decisions. Remember, redundancy is just a setback — not the end of your story.
- Cultivate a positive mindset
A positive mindset can make a big difference in how you navigate what’s to come. It’s easy to fall into negative thinking patterns, but those thoughts won’t serve you or your situation. It’s natural to feel disappointed, angry, or defeated. Try to reframe those thoughts — this could be the beginning of something better. Focus on the skills that landed you your last role. Remember your value and have confidence that you’ll bring those strengths to your next opportunity.
- Review your financial position
Look at your savings, emergency fund, and any available overdraft. Work out how long your money will last and where you might stretch it. If the cash runway is short, review your discretionary spending and identify what you can reduce or pause temporarily.It might be tempting to cancel insurance policies for short-term relief, but that comes with risks. Cancelling often means starting from scratch with new underwriting if you reapply later. If your health or circumstances change, you may no longer qualify or face higher premiums.
If you’re considering cancelling a policy, talk to your financial adviser first. There may be options like pausing your policy or taking a payment holiday without losing coverage.
- Talk to your lenders
If you’re worried about keeping up with your mortgage or other debt repayments, reach out to your lenders early. Most would prefer to work with you on a solution — like a repayment holiday or revised terms — rather than see you default.
Final thoughts
Redundancy is something none of us want to face – but planning for it can help you stay calm and confident, no matter what happens. Speak to an adviser to understand which insurance options might be most suitable for your situation.
We’re here to help you protect your financial progress – and plan your next move with confidence.
