The short answer: usually no
Standard income protection insurance is designed to replace your income if you're unable to work due to illness or injury. Redundancy and unemployment are explicitly excluded from almost all income protection policies sold in the UK.
Why is redundancy excluded?
Insurers exclude redundancy because it introduces moral hazard — someone who knows they might be made redundant could be tempted to take out a policy and then accept redundancy. Illness and injury are unplanned events that can be more reliably underwritten.
Are there policies that cover redundancy?
Yes — some specialist products, sometimes called "accident, sickness and unemployment" (ASU) policies or "payment protection insurance", do include redundancy cover. However:
- They typically only cover involuntary redundancy (you can't volunteer)
- Cover is often limited to 12 months
- There's usually an exclusion period at the start (e.g. no claims in the first 90 days)
- Premiums are higher than standard income protection
What should self-employed people do?
Self-employed individuals can't be made redundant in the traditional sense, but they can lose clients or contracts. Standard income protection covers them only if they can't work due to health reasons. Business insurance may offer some protection against loss of contracts in other circumstances.
What other financial safety nets exist?
If you're made redundant, you may be entitled to:
- Statutory redundancy pay (if you've worked for your employer for 2+ years)
- Universal Credit (subject to means testing)
- New Style Jobseeker's Allowance (for National Insurance contributors)
- Any employer redundancy package above the statutory minimum
Should I still get income protection?
Yes — illness and injury are statistically far more likely than redundancy to cause long-term financial hardship. Over half of long-term sickness absences last more than a year. Income protection is one of the most important financial safety nets you can have.
Frequently Asked Questions
No — standard income protection policies do not cover redundancy. They only pay out if you can't work due to illness or injury.
Yes — accident, sickness and unemployment (ASU) policies cover both. They are more expensive and typically limited to 12 months of payments.
PPI (payment protection insurance) typically covers a specific debt repayment and may include redundancy. Income protection replaces a broader portion of your income and focuses on illness and injury.