Can you pay your rent or mortgage if you're made redundant? What about other basic living costs such as groceries, phone, power and water?
For most Kiwis, losing your job is a major financial disaster. Within weeks many are facing financial ruin. Standalone redundancy insurance isn't common in New Zealand but there are ways to cover yourself.
Back in November, the Productivity Commission recommended in addition to Jobseeker Support from Work & Income that New Zealand adopt an unemployment insurance scheme paying a percentage of current income for redundancy.
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That's not going to happen in the immediate future. In the meantime, though, there are options that can help you through financially should you lose your job. They aren't all insurance products.
If you are made redundant you may qualify for Jobseeker Support, which at least keeps food on the table. It doesn't go very far, however, and some, even those with no savings, may not qualify for many reasons including having a working partner; even if that second income is needed to make ends meet.
One of the best ways to ride out a period of unemployment is to build up three months' living costs. Most likely you'll be back at work before the money is exhausted. People with good emergency funds sometimes don't need expensive insurances.
As you might expect from the Productivity Commission's report, pure redundancy insurance policies are rare, although they can be bought. Usually, there will be a stand-down period of maybe 30 days and you will be paid for six months. Beware of the exclusions, says Susan Taylor, chief executive at Financial Services Complaints Limited. That can include requirements that you were employed for a minimum number of hours a week before redundancy and there are often lengthy stand-down periods before any benefits kick in. Even rumours of restructuring before you take the policy out may invalidate any cover.
Income protection insurance
This is the gold standard insurance for protecting your income against rainy days. It typically covers just illness and accident, but some policies do have redundancy extensions. Never assume that the policy being sold to you by the bank, insurance company or financial adviser includes it. I've seen more than one complaint that, come claim time, it turned out the redundancy cover option hadn't been included.
Mortgage repayment insurance
If you can't afford to pay the premiums to cover your entire income, or a percentage of it, consider taking out a policy that pays just your mortgage. This will give you financial breathing space if you lose your job. Once again check that it covers redundancy. It may not.
Payment protection insurance
This is usually sold with personal and motor loans. It's not always good value and can be hard to claim on. An emergency fund is usually better. If, however, it means you don't lose your car in particular during a period of unemployment then it may be worthwhile. Just be wary of it being pushed to buy by salespeople who are just thinking about the commission.
Bills payments insurance
If you really can't save an emergency fund and income/mortgage protection or redundancy insurance bill payments type cover can help. Cigna, for example, has a very simple Bill Relief Insurance policy allows you to receive a payout of $5000, $10,000 or $15,000 if you can't work due to illness, accident or redundancy.
I should mention that KiwiSaver funds can be withdrawn for "significant financial hardship", such as might result from redundancy. This should never be relied upon to pay bills. The criteria are stringent, says Taylor.
Unfortunately, contractors and other self-employed people/business owners cannot get redundancy cover and should beware of being sold policies that only cover employed people. Some of the policies mentioned above will cover you for bankruptcy in certain circumstances. Make very sure you read the fine print. It may only cover you if your bankruptcy is forced upon you, not entered into voluntarily.