Understanding Income Protection and Whether It Covers Redundancy

Although we’re living through uncertain economic times, there are steps you can take to bolster your security and protect your livelihood. In this article we’ll provide information about income protection insurance and redundancy coverage and explore ways you can safeguard yourself and your family against unexpected misfortune.

Keep reading to learn more about income protection and redundancy insurance in Australia and discover insurance options to suit your situation.

The difference between income protection insurance and redundancy insurance in Australia

There’s often confusion around the terms ‘income protection’ and ‘redundancy insurance’. To clear up any uncertainty, here’s a quick summary:

• Income protection insurance provides a portion of your income if you’re unable to work due to illness or injury.
• Redundancy insurance provides financial assistance if you lose your job due to involuntary redundancy.

Income Protection insurance is offered by most of the leading insurance providers – providing support for those whose ability to work has been affected by a medical condition. NobleOak offers Income Protection Insurance to Australians between the ages of 18 and 55,  who work at least 20 hours per week.

In Australia, it’s rare for an income protection insurance policy to provide benefits if you’re made redundant. The Canstar guide to redundancy insurance explains that it’s not offered as a standalone policy by most Australian insurance providers, and although sometimes it can be added to an insurance policy as an extra, it’s still difficult to come by.

Income protection insurance

NobleOak’s Income Protection Insurance (also sometimes known as Disability Income Insurance) provides a financial safety net if you cannot work due to injury or illness. If you have income protection coverage, and you become unable to work due to falling ill or suffering an injury and are eligible to claim, NobleOak can replace a portion of your income for a period of time.

Here, we’ll explain some of the key terms relating to NobleOak’s Income Protection Insurance:

• Monthly Benefit: Provides a monthly payment of up to 75% of your pre-tax income, which can help cover living expenses, mortgage repayments, and other financial obligations.
• Benefit Period: This is the length of time the monthly benefits are paid, which can range from a few years to up to age 65, depending on the policy terms chosen.
• Waiting Period: The period you must be unable to work before the benefits commence, which can vary from a few weeks to several months.
• Total Disability: Covers you if you are completely unable to perform your usual occupation due to illness or injury.
• Partial Disability: Provides benefits if you can return to work part-time or in a reduced capacity but still experience a loss of income.
• Rehabilitation Support: You might be able to access benefits for rehabilitation programs to help you return to work sooner.

While most other types of life insurance provide financial support in the form of one lump sum payment, income protection insurance typically provides monthly payments. It’s important to also note that income protection insurance does not cover death, retirement, and, in most cases, redundancy.

More information can be found in our article: Income Protection Insurance – what you should know before taking out cover.

Redundancy insurance

‘Redundancy’ is the term used to describe scenarios in which an employment contract is discontinued because the company no longer needs someone to perform that particular role. There can be many reasons why an employee may be made redundant – it commonly happens because of organisational restructuring.

Redundancy insurance in Australia is not common, primarily because of our employment laws, which provide significant protections and benefits to workers facing job loss. Employers are typically required to offer redundancy payments and other support, reducing the perceived need for additional insurance. Additionally, the high cost and specific conditions associated with redundancy insurance policies can deter people from purchasing this type of coverage.

If you want to protect yourself from redundancy, there are other things you can do to fortify your financial position. Growing your savings and making sound financial investments are two ways you can mitigate against financial hardship – however for expert advice, it’s best to seek guidance from a certified financial professional.

Does income protection cover redundancy?

Income Protection Insurance from NobleOak does not cover redundancy. It’s designed to provide financial support by replacing a portion of your income if you’re unable to work due to illness or injury – not job loss due to redundancy. For coverage related to redundancy, you’ll need to seek out other financial support options.

Income insurance for redundancy is generally hard to come by in Australia due to our comprehensive social safety nets and strong employment protection laws.

Can you add redundancy cover to an income protection policy?

It’s not generally possible to add redundancy cover directly to an income protection policy. In rare instances, redundancy cover might be offered as a separate insurance product. This is due to its distinct nature from income protection, which primarily covers loss of income due to illness or injury.

If you’re interested in redundancy income protection, you would typically need to purchase a specific redundancy insurance policy that’s designed to provide financial support in the event of involuntary job loss.

How can income protection complement redundancy benefits?

While redundancy benefits assist during job loss by providing a lump sum payment or ongoing support, income protection helps maintain financial stability by covering regular expenses and commitments throughout periods of incapacity, offering a comprehensive safety net against both health-related and employment-related uncertainties.

Whether or not income protection insurance is right for you will depend on your personal financial circumstances. If you’re in a position where you’d struggle financially if you were not able to earn an income, it would be wise to look into income protection insurance options.

Award-Winning Income Protection Insurance

NobleOak’s Income Protection Insurance policies offer competitive premiums and flexible options such as choice of benefit period and waiting period. We’re proud to offer high-quality support to our policyholders.

To learn more, you can use our calculator tool to start a quote. You can also contact us to speak directly to our friendly and knowledgeable team.

Disclaimer: Any financial product advice is general in nature only and does not take into account your individual circumstances, objectives, financial situation, or needs. Before acting on it, please consider the appropriateness of the information, having regard to those factors. Any third-party websites or tools referred to are subject to their own terms and conditions and NobleOak Life Limited makes no representation or warranty as to any information on those websites. Persons deciding whether to acquire or continue to hold life insurance issued by NobleOak Life Limited should consider the relevant Product Disclosure Statement and Target Market Determination for the product. Please also consider NobleOak Life Limited’s Financial Services Guide. NobleOak Life Limited ABN 85 087 648 708 AFSL 247302.