Redundancy insurance pays a monthly benefit if you lose your job involuntarily. It sounds useful — but in New Zealand, the product has significant limitations that make it less valuable than it appears for most people.
What Redundancy Insurance Covers
Redundancy insurance (sometimes called involuntary unemployment insurance) pays a monthly income replacement benefit for a limited period if you’re made redundant from your job.
Typical cover:
- Monthly benefit: usually 75% of salary up to a maximum (e.g. $3,000–$5,000/month)
- Benefit period: typically 3–6 months (some policies up to 12 months)
- Trigger: genuine involuntary redundancy — you must be laid off, not resign or be dismissed for cause
What Redundancy Insurance Does NOT Cover
The exclusions are substantial and are the main reason this product has limited popularity in NZ:
- Self-resignation: Doesn’t pay if you leave voluntarily
- Dismissal for cause: If you’re fired for performance or conduct, not covered
- Predictable redundancy: If your role was under threat at the time of purchase (many policies have an initial stand-down period, often 6 months, meaning you can’t claim if redundancy happens shortly after buying)
- Casual or short-term employment: Most policies require you to have been in your role for a minimum period (e.g. 6–12 months)
- Self-employed people: Redundancy insurance typically requires you to be a salaried employee — sole traders and contractors usually can’t access it
- Contractors: If you’re on a fixed-term contract, coverage is often excluded or heavily limited
How Much Does Redundancy Insurance Cost in NZ?
Standalone redundancy cover is not widely available in New Zealand. Most NZ income protection products focus on illness and injury (the primary risk ACC doesn’t cover).
Where redundancy cover does exist, it’s often:
- An add-on to income protection or mortgage protection policies
- A benefit within specific bank or mortgage products
- Included in some credit card or loan protection products (often poor value)
Costs vary but expect to pay $30–$100/month for standalone redundancy cover.
The Core Problem with Redundancy Insurance in NZ
The stand-down period undermines its utility. Most policies won’t pay if redundancy occurs within the first 6 months. If your employer announces restructuring after you buy — you’re still in the stand-down period.
The benefit period is short. 3–6 months of benefit means it’s a temporary bridge. For professional roles where it takes 3–6 months to find a new position, the policy barely covers the search period.
It doesn’t cover self-employed people — who face the greatest income disruption risk.
The price-to-value ratio is poor for most New Zealanders compared to alternatives.
Better Alternatives to Redundancy Insurance
Emergency fund
The most reliable protection against redundancy is a cash buffer — ideally 3–6 months of essential expenses. This covers you regardless of the cause of income loss and has no exclusions.
See Emergency Fund NZ for how to build one.
Income protection insurance
If your primary concern is income protection broadly (illness AND redundancy risk), income protection insurance provides far more comprehensive cover for illness and injury — which is statistically more likely than redundancy.
Mortgage protection insurance
Some mortgage protection insurance policies include redundancy cover as a feature — covering your mortgage repayments for a period if you’re made redundant.
Skills and employability
Investing in skills and professional networks reduces your redundancy risk and reduces the time to re-employment if you are made redundant.
When Redundancy Insurance Might Make Sense
Despite the limitations, redundancy insurance could be worth considering if:
- You work in a sector with high restructuring activity and want a specific buffer
- You have a large mortgage and minimal savings
- You’ve found a policy with a short stand-down period and realistic benefit terms
- It’s available as a low-cost add-on to an existing product you already need
Bottom Line
For most New Zealanders, the combination of:
- A 3–6 month emergency fund
- Income protection insurance covering illness/injury
…provides better value than standalone redundancy insurance. But if you work in an industry with high redundancy risk, have minimal savings, and can find a good-value policy, it can provide a useful additional buffer.
Always read the exclusions carefully before purchasing.
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