The question of redundancy has come up in questions and conversations for a while. Economic pressure has made redundancy an issue for every employee causing many to look into redundancy insurance. Can you get income protection insurance if you are made redundant? The answer is yes and no. No, you cannot start a new policy if you have become redundant. That would be like trying to buy life insurance after you are deceased. If you are working, then you can buy income protection insurance. Some policies will payout if you are made redundant.

The law does not force New Zealand companies to pay any form of financial retribution if an employee is made redundant. Because the economy is in a state of where it expands and contracts, redundancy is now common place. Income protection insurance is perhaps one of the most misunderstood insurance policy types by both consumers and insurance professionals. Income protection insurance is not just a policy that comes with buying a house.

Income protection insurance is designed to protect your income in the even that you are disabled or injured to the point that you can no longer work or earn money. The thought of being in a situation where you have no income should chill most adults to the bone. Our income is often our greatest asset and over the working life span can result in hundreds of thousands of dollars and sometime millions of dollars. The fact that our income can reach these financial heights is exactly why most of us choose to protect it by insurance.

Income protection works by paying qualified individuals a percentage of their income. The insurance industry in New Zealand offers two types of policies an indemnity policy and a declared value policy. Each riddled with strengths and weaknesses.  Some of the pitfalls that consumers should avoid are as follows:

Policy Renewal

Policies are typically written for a specific period of time and then they can be renewed. Not every policy will allow the consumer to renew.  There are some catch phrases such as, “can be canceled at any time, for any reason.” These policies are designed to provide you income at times when you cannot work. Some insurance companies say that they can cancel a policy because you “might” have a claim . This is especially true of people who have lost their jobs through redundancy.

Redundancy Insurance Benefit Period

An income protection policy provides income when you are injured or disabled. These types of events can last long term. Therefore many people choose policies that cover them for the long term, over policies that only provide payment for short time periods such as, two years, five years. This is a benefit that should cover you until you reach the age of 65 either through policy choice or renewal. It makes little sense to get two years into a recovery and then lose your income. In the case of redundancy, this may not apply since work could be found within a shorter time period.

Group Policies

Sometimes income protection is offered through an employer as part of a benefits package. Policies that are written for groups of people and not for individuals often have escape clauses embedded in them that protect the insurance company in case of a claim. Insurance companies will find any excuse not to pay a claim, and that is why most people are wary of special wording that restricts or limits how the policy may be applied.


Taxation is another worry area for anyone who takes out an income protection policy because the reality of taxation and income protection insurance payment is not clear. Some policies payments are taxed and others are not. Many people advise consumers to plan out the financial impacts of all of the ‘what if’ questions that can be asked. What if I am disabled for ten years? What if my policy payments are taxed? What if I am only partially disabled? Many also  sit down with a tax professional to find out if their policy payments are going to be taxed and with a financial advisor and go over their financial situation. Each individual has their own unique financial situation.


The idea of redundancy insurance is about replacing the income that you would lose if your work position suddenly became unnecessary. The consumer’s job is to find a policy that covers redundancy. That can sometimes be hard to do. Like other forms of income protection insurance, there are pitfalls.


(This article and all articles on this site are not to be taken as professional insurance advice and information may not be accurate, for insurance advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)