Does Income Protection Cover Redundancy?

Standard income protection does not cover redundancy. Learn the difference between income protection and redundancy insurance, and what support is available.

If you're worried about losing your job and want to protect your income, you may be considering insurance. But it's important to understand that income protection and redundancy insurance are not the same thing. While income protection is designed to cover illness and injury, it usually does not cover redundancy unless specific redundancy cover is included.

This guide explains what income protection is, how it differs from redundancy insurance, and what to consider if you're looking for unemployment cover in the UK.

What Is Income Protection?

Income protection is a type of insurance that pays out a regular monthly income if you're unable to work due to illness or injury. It typically covers:

  • Short-term or long-term absence from work

  • Both employed and self-employed individuals

  • Up to 60–70% of your usual gross income

It does not normally cover involuntary redundancy or other non-medical reasons for being out of work.

What Is Redundancy Insurance?

Redundancy insurance, also called unemployment insurance or accident, sickness and unemployment (ASU) cover, is a separate type of policy that specifically covers:

  • Involuntary redundancy

  • Short-term unemployment

  • Sometimes illness and injury (if bundled as ASU)

This type of cover is time-limited, usually paying out for up to 12 or 24 months while you look for new employment.

What’s the Difference Between Income Protection and Redundancy Insurance?

The key difference is why you are unable to work.

  • Income protection covers health-related issues only. You must be signed off by a GP or medical professional.

  • Redundancy or unemployment insurance covers job loss, specifically if it was outside your control.

Most income protection providers exclude redundancy unless a specific rider or additional policy has been added – which is rare in standard policies.

Does Income Payment Protection Cover Redundancy?

It depends. Some payment protection insurance (PPI) or income payment protection policies may include redundancy as part of an ASU bundle. These policies tend to:

  • Have short payout periods (often 12 months max)

  • Come with exclusion periods (usually 3–6 months after purchase)

  • Only pay out if you are made involuntarily redundant

You must check the policy documents carefully to confirm if redundancy is covered and under what conditions.

Does Mortgage Insurance Cover Redundancy?

Mortgage payment protection insurance (MPPI) may include cover for redundancy, especially if it’s sold as ASU cover.

If it does, it will usually cover your monthly mortgage payments for a limited period after redundancy – typically 12 to 24 months. Some providers require that you’ve been in continuous employment for a certain number of months before claiming.

Who Needs Income Protection?

Income protection is ideal for:        

  • Self-employed individuals with no sick pay

  • Employed workers without adequate employer sick pay

  • People with long-term health concerns or physically demanding jobs

  • Anyone with mortgage or financial commitments that would be at risk if they couldn’t work

But if your main concern is job loss rather than illness, you may need to consider redundancy insurance instead.

How Does It Work?

  • You buy a policy tailored to your income and job type

  • You choose a deferral period (how long before payments start)

  • If you're signed off work due to illness or injury, you submit a claim

  • Payments continue until you return to work, the claim period ends, or you reach retirement (depending on policy type)

Redundancy is only covered if you’ve bought ASU cover or a standalone unemployment insurance policy.

What Types of Unemployment Cover Are There?

  1. Redundancy Insurance / Unemployment Cover – pays out if you’re made redundant

  2. ASU (Accident, Sickness and Unemployment) Insurance – covers a range of reasons you might be out of work

  3. Mortgage Payment Protection Insurance (MPPI) – focuses on covering mortgage payments after redundancy or illness

What Does Unemployment Insurance Cover?

It usually covers:

  • Involuntary redundancy

  • Loss of job due to company closure or restructure

  • A fixed monthly amount to help with bills or loan repayments

  • Limited payout period, e.g. 12–24 months

It won’t cover voluntary redundancy, dismissal for misconduct, resignation, or redundancy within the first few months of the policy.

What Factors Affect the Price of Redundancy Insurance?

  • Your age and health

  • Job type and industry (some sectors are seen as higher risk)

  • Coverage amount and duration

  • Whether it includes illness and injury

  • Length of exclusion and deferral periods

What Isn’t Covered by Redundancy Insurance?

You won’t be covered if:

  • You volunteer for redundancy

  • You are dismissed for misconduct or breach of contract

  • You lose your job within the waiting period (often 3–6 months after purchase)

  • You’re self-employed and not covered under the provider’s terms

  • You're aware of impending redundancies before taking out the policy

Final Thoughts

Standard income protection insurance does not cover redundancy. If you're looking to protect your income from job loss, you'll need a separate unemployment insurance policy, or ASU cover. Always read the fine print and make sure you're getting the protection you actually need.

If redundancy is your main concern, shop around for a dedicated policy, and make sure you're not already at risk of redundancy when you apply – otherwise, your claim is likely to be rejected.