Losing your job due to redundancy can create a range of financial worries, like your ability to continue paying the mortgage and other household bills.

If you’re unprepared, an unexpected redundancy could seriously impact your family’s standard of living until you can secure another job.

But whether redundancy is something you half-expect or a distant possibility, there are a few things you can do to prepare and protect yourself financially.

Can you insure yourself against redundancy?

If you are an employee, there are three main ways you can protect yourself financially if you were ever made redundant through no fault of your own.

Mortgage Payment Protection Insurance (MPPI)

An MPPI policy will pay your monthly mortgage payments, typically starting after three months. If you have enough savings, you may choose to extend this period to six months, which will reduce the cost of the premiums. The policy will generally pay out for 12 months in total, giving you enough time to find another job.

You can increase the insurance cover to help pay some of your other bills as well. In this instance, a provider would typically pay out up to 125% of your mortgage payments for the insured period.

Payment Protection Insurance (PPI)

You might have taken out PPI with a loan or credit card. The PPI is designed to cover your repayments if you were made redundant or couldn’t work due to an illness, injury or death.

You’ll probably know that PPI has gained a bad reputation due to the mis-selling scandals of the 1990s and early 2000s. It was sold to everyone regardless of their employment status, which led to many people, like the self-employed, paying for insurance that they would never be able to claim. As a result, providers have had to pay back over £50 billion to their customers.

However, if you’re employed, PPI is still an option to help you cover repayments on any unsecured loans for a short time. The policy will typically start paying three months after your earnings stop and cover you for up to 12 to 24 months.

Short-term Income Protection Insurance (STIP)

Income protection is often thought of in terms of injury and illness, but you can also choose a short-term income protection policy to cover you for redundancy. Payments will start between four weeks and six months after you lose your job – and will typically continue for up to 12 months or until you find new employment.

As with other income protection policies, it won’t pay your entire monthly income, with payments generally capped at 50% to 70%.

For more information about income protection, see What to ask when choosing an income protection policy.

Is redundancy insurance right for me?

If you’re self-employed, these policies are less likely to be right for you than if you’re employed. In this instance, speak to an independent financial adviser – they will help you find the best ways to protect you and your family if you cannot work or experience a sudden loss of income.

If you’ve already been told you’re at risk of redundancy, it’s not worth taking out a policy because it’s unlikely you’ll be able to make a claim. The same is true for voluntary redundancy.

If you plan on taking out any insurance, it’s essential to read the terms and conditions carefully to ensure you qualify for a claim.

I’ve been told I’m ‘at risk’ of redundancy – what should I do?

If you’ve been told there’s a possibility you might be made redundant, there are steps you can take in advance to protect yourself as best you can – even if you don’t have any insurance in place.

1: Conduct a review of your existing debts

Once you’ve been made redundant, you’ll find it difficult to refinance any existing debts. Therefore, take steps to move your current loans and credit cards to a cheaper rate. You might want to take advantage of credit cards offering interest-free balance transfers or consolidate any unsecured debt into loans with a lower interest rate.

2: Pay off any debts you can

Managing and paying for debts following a redundancy can be a nightmare. Take steps to pay off whatever debts you can from your savings account. The interest rate you’re paying for the debt is probably higher than the rate you currently earn from your savings. But keep some of your savings back – it’s important to have access to an emergency fund if needed.

If you don’t have enough savings, curb your spending for the time being until you know what’s going to happen.

3: Manage your mortgage

If your current mortgage rate is coming up for renewal, don’t leave it until the last minute to get a new deal. Ask an independent mortgage adviser to find you the right deal for your circumstances, and transfer your mortgage as soon as the fixed term ends – or even beforehand if the penalties are not too high. With the future direction of interest rates uncertain, now is the time to check whether you’re on the best deal possible.

To reduce your payments further, you could ask your mortgage provider about increasing the term of your mortgage. However, this will cost you more in interest over the long term.

You could also find out whether your mortgage provider will give you a mortgage holiday or defer payments until your circumstances change. Since the pandemic, many mortgage lenders have been far more flexible than they used to be.

When it comes to your mortgage, try to avoid making any rash decisions. Because your home is at risk if you do not keep up with repayments, speak to an independent mortgage adviser to ensure you take the best course of action.

Tailored debt support

If you approach your creditors and explain your situation, they should offer you a repayment strategy that, in the short term, reduces or stops your payments. However, lenders must notify the credit reference agencies of any support they offer, which will impact your credit rating.

Financial planning from Amber River

If you want advice on how best to protect you and your family in times of adversity, such as a redundancy, illness or an accident, an Amber River Financial Planner will help you build a robust financial plan that considers all aspects of your life. They will review your savings, investments and hopes for the future, and put measures in place that ensure your financial plans stay on track, no matter what life throws at you.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.