Insights
Does Income Protection Cover Redundancy?
Written by Safety Nest
The short answer
No, standard income protection in Australia does not cover redundancy or losing your job. Income protection is designed to replace part of your income if you cannot work because of illness or injury, not because your role was made redundant or the business cut costs. This is one of the most common misunderstandings we see, so below is a plain explanation of what income protection actually pays out for, and where redundancy cover sits separately.
Does income protection pay out if I am made redundant or lose my job?
No. Standard income protection responds when you are medically unable to work due to an illness or injury. Being made redundant, having a contract end, a restructure, or a business downturn are economic reasons for job loss, and they are not covered events under an income protection policy. If you are healthy and able to work but no longer have a job, an income protection policy generally will not pay a benefit.
What does income protection actually pay out for?
Income protection pays a monthly benefit, generally up to about 70% of your income, when you cannot work because of illness or injury. There is usually a waiting period before payments start, and a benefit period that sets how long payments can continue. The trigger is your medical inability to perform your work, confirmed under the policy definitions, not the state of the job market.
Redundancy myth
Illness and injury, not job loss
How a claim is assessed can vary by your specific policy.
Covered events
- Illness that stops you working
- Injury that stops you working
- Medical inability to work
- Monthly benefit up to about 70%
- Benefit after a waiting period
–Not covered events
- Redundancy
- Contract ending or restructure
- Business downturn
- Being between jobs
- Gaps between contracts
Common misconception: "income protection covers me if I lose my job"
This is the false belief we hear most often. People assume income protection acts like a safety net for any loss of income, including redundancy. It does not. Income protection protects against the financial impact of being too sick or injured to work. Job loss for economic reasons sits outside what the cover is built to do, so it is important not to rely on income protection as redundancy insurance.
Does it cover gaps between contracts when I am not working?
Generally no. The benefit is tied to your earned income from working, so a gap between contracts when you are not earning is usually not a covered event in itself. If you become ill or injured during that gap, how a claim is assessed can be more complicated, because the policy looks at your income and working status at the relevant time. This is exactly the kind of detail worth checking against your own policy and situation with an adviser.
Can I claim income protection if I am between jobs at the time?
It can be more complicated. Because income protection benefits are calculated against your income, being unemployed or between jobs at the point of claim can reduce or complicate the benefit, since there may be little or no current income to replace. Some policies have features that address recent changes in work, but the detail varies. If you are between roles, it is worth understanding how your specific policy treats this before you rely on it.
Is there any cover that protects against redundancy?
There are separate products that offer limited redundancy or involuntary unemployment cover, and these are often attached to a loan or mortgage rather than sold as income protection. This kind of cover is usually narrow, with strict conditions, short benefit periods and waiting times, and it is a different product to income protection. If protecting against job loss is a priority for you, it is best to look at these options on their own terms rather than expecting income protection to fill that gap.
FAQs
Frequently asked questions
Does income protection pay out if I am made redundant or lose my job?
No. Standard income protection in Australia pays a benefit only when you cannot work due to illness or injury. Redundancy and job loss for economic reasons are not covered events.
What does income protection actually pay out for?
It pays a monthly benefit, generally up to about 70% of your income, if you cannot work because of illness or injury, after a waiting period and for a set benefit period. The trigger is medical inability to work, not job loss.
Does income protection cover gaps between contracts when I am not working?
Generally no. The benefit is tied to your earned income, so a gap between contracts when you are not earning is usually not a covered event on its own. How a claim is assessed can be more complex during such gaps.
Can I claim income protection if I am between jobs at the time?
It can be more complicated. Because the benefit is based on your income, being unemployed at the point of claim can reduce or complicate a claim, as there may be little current income to replace. It depends on your specific policy.
Is there any cover that protects against redundancy?
There are separate redundancy or involuntary unemployment products, often attached to a loan or mortgage. They are limited in scope and are a different product to income protection, not part of a standard income protection policy.
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