Does Income Protection Cover Redundancy? What Actually Pays Your Mortgage If You Lose Your Job

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Income protection insurance does not cover redundancy. It pays out when illness or injury stops you working, not when your employer stops employing you. The products that cover job loss are accident, sickness and unemployment (ASU) cover and mortgage payment protection insurance (MPPI), and they work very differently.

That matters because the bill that does not pause when your job does is the mortgage. This guide looks at redundancy cover from the mortgage payment up: what each product pays, what it costs in real numbers, what voids a claim, and the options your lender must give you before you spend anything on a premium.

Does income protection cover redundancy?

No. Standard income protection insurance pays a monthly benefit when you cannot work because of illness, injury or disability. Redundancy is an employment event, not a health event, so a claim on those grounds is declined. Some insurers sell an ASU version that bolts unemployment cover onto the accident and sickness elements, but that is a different product with different terms, a different price and a much shorter payout period.

This trips people up because both products are sold under the “income protection” umbrella and both pay a monthly sum. The difference is the trigger. If you already hold a policy, check the schedule for the word “unemployment”. If it is not there, redundancy is not covered, regardless of how the policy was described when you bought it.

What insurance actually covers redundancy?

Four products get confused with each other. Only two of them pay out on involuntary job loss.

Product	Pays out on	What it covers	Typical claim length
Income protection (long term)	Illness or injury only	A percentage of your income	Until recovery or retirement
Short term income protection	Illness or injury only	A percentage of your income	12 to 24 months
Accident, sickness and unemployment (ASU)	Illness, injury or involuntary redundancy	A fixed monthly benefit you choose	12 months, occasionally 24
Mortgage payment protection insurance (MPPI)	Illness, injury or involuntary redundancy	Your mortgage payment, often plus a margin	12 months, occasionally 24

ASU and MPPI can be bought as unemployment only, accident and sickness only, or all three. Unemployment only is the cheapest and the version most people actually want when redundancy is the worry.

What is mortgage payment protection insurance?

Mortgage payment protection insurance is a short term policy that pays your monthly mortgage payment if you are made redundant or are unable to work through accident or illness. You choose the benefit amount, usually your mortgage payment plus a margin for buildings insurance and life cover, and it is paid tax free directly to you for a maximum period, most commonly 12 months.

MPPI is the largest search term in this whole subject and the one nobody explains properly. Three things matter about it:

It is standalone. You do not have to buy it from your lender, and lender-sold versions are frequently not the cheapest or the broadest.
It is not linked to your mortgage account. The money is paid to you, so cover survives a remortgage to a different lender.
Benefit is capped, both as a monthly amount and as a proportion of income. Caps around £2,000 to £2,500 a month are common.

MPPI is unemployment cover sized to one specific bill. If your real fear is missing the mortgage, price that first rather than full income protection.

How much does redundancy cover actually cost?

Almost every page on this subject asks what it costs and then gives no figures. ASU and MPPI are priced on a rate per £100 of monthly benefit. Combined accident, sickness and unemployment cover typically runs at roughly £4 to £5 per £100 for someone in their thirties on a 30 day deferred period. Unemployment only cover is cheaper. Age, occupation and deferred period move the rate.

Monthly benefit	Indicative rate per £100	Indicative monthly premium	Maximum 12 month payout
£800	£4.50	£36	£9,600
£1,200	£4.50	£54	£14,400
£1,400	£4.50	£63	£16,800
£2,000	£4.50	£90	£24,000

These are indicative figures for full accident, sickness and unemployment cover, used to show the shape of the pricing. Your own quote depends on age, occupation, deferred period and insurer.

Worked example. A borrower with a £1,400 monthly mortgage payment insures exactly that at £4.50 per £100. The premium is £63 a month, or £756 a year. A full 12 month claim pays £16,800. Break-even is about seven weeks of claim, and every month beyond that is genuine protection of the mortgage.

What is the difference between a deferred period and an exclusion period?

These are two separate waiting periods and confusing them is the most common reason a claim fails.

The deferred period is how long you must be unemployed before the policy starts paying, usually 30, 60 or 90 days. A shorter deferred period costs more. Some policies then pay back to day one, others pay only from the end of the deferral, and that single clause materially changes the value of the policy.

The initial exclusion period is how long the policy must have been in force before you can claim at all, commonly 60 to 120 days from the start date. Buy a policy in March, lose your job in April, and you will almost certainly get nothing.

The consequence is simple. Redundancy cover has to be bought before there is anything to worry about. Once a restructure is announced or a consultation opens, it is already too late for that policy to help you.

What voids a redundancy insurance claim?

Unemployment cover is written to pay out on genuinely involuntary job loss. The following will normally block a claim:

Voluntary redundancy, resignation or agreeing a settlement to leave
Dismissal for misconduct or poor performance
The end of a fixed term contract that was always going to end
Being aware of the risk of redundancy when the policy started, including rumour and consultation
Claiming inside the initial exclusion period
Not registering as unemployed and not providing evidence that you are actively looking for work

Most insurers also require you to have been employed for a minimum continuous period, often six months, working a minimum number of hours, often 16 a week, on a permanent contract. Read the eligibility section before the benefits section.

What must your lender do before you pay a premium?

This is the part almost nobody publishes, and it costs nothing. Under the FCA’s mortgage conduct rules (MCOB 13), a lender must deal fairly with a borrower in payment difficulty and consider a range of forbearance options rather than moving straight to enforcement, including deferring or waiving interest and capital, extending the term and capitalising arrears. The Mortgage Charter, signed by lenders representing around 85% of the UK mortgage market, adds that a borrower will not be forced to leave their home without consent inside 12 months of a first missed payment other than in exceptional circumstances.

In practice, the free levers available to a redundant borrower are usually:

A temporary switch to interest only, which can cut a payment substantially without changing lender
A term extension, which lowers the monthly payment permanently but increases total interest paid
A short payment deferral, with the missed amount added to the balance
An agreed reduced payment arrangement while you find work

Call the lender before you miss a payment, not after. Options offered pre-arrears are consistently better, and the conversation is on your record either way. If your fixed rate is also ending soon, read what happens when your fixed rate ends, and check whether a remortgage onto a longer term solves the affordability problem outright.

Support for Mortgage Interest

Support for Mortgage Interest (SMI) is a government loan covering the interest on your mortgage while you are on a qualifying benefit. It is not a grant: it is secured against the property, accrues interest, and is repaid when you sell or transfer ownership.

SMI covers interest on up to £200,000 of your mortgage at a standard rate of 3.66%, which on the full £200,000 is roughly £610 a month. If you claim Universal Credit you must receive it for three consecutive months before SMI starts. On income-based ESA the wait is 39 weeks, and on Pension Credit it can start immediately, though the limit drops to £100,000. Our guide to getting a mortgage on Universal Credit covers how lenders treat benefit income.

Statutory redundancy pay

If you have two years or more of continuous service you are entitled to statutory redundancy pay. From 6 April 2026 the weekly pay figure is capped at £751 and the maximum total payment is £22,530, based on a maximum of 20 years of service. The calculation is half a week’s pay for each full year worked under age 22, one week for each year aged 22 to 40, and one and a half weeks for each year aged 41 or over.

Worked example. A 45 year old with 12 years’ service earning £45,000 has four qualifying years at 41 or over (six weeks) and eight in the 22 to 40 band (eight weeks). That is 14 weeks at the £751 cap, so £10,514. Against a £1,400 monthly mortgage payment that is around seven months of cover, paid before any insurance policy would clear its deferred period.

What actually happens month by month after redundancy?

Mapping the timeline against the direct debit is the exercise most people skip.

Stage	What is happening	Where the mortgage payment comes from
Notice period	Still employed and paid	Salary
Day 1 to 30	Final pay and statutory redundancy received; deferred period running	Redundancy payment and savings
Day 30 to 90	Deferred period ends, first insurance payment lands if you have cover	ASU or MPPI benefit, or redundancy payment
Month 3	SMI can begin if on Universal Credit	Insurance benefit plus SMI interest cover
Month 12	Insurance benefit period typically ends	New employment, or lender forbearance

The gap that catches people is months 1 to 3. Insurance has not started, benefits have not started, and the direct debit still goes out. That gap is what your redundancy payment and emergency savings are for, and it is why a 30 day deferred period is usually worth the extra premium.

Can the self-employed and contractors get redundancy cover?

Mostly no, and the industry is poor at saying so plainly. Standard unemployment cover requires a permanent employment contract, so sole traders, company directors and most contractors are excluded outright. A handful of insurers write cover on the basis of involuntary cessation of trading, but the terms are narrow and the evidence requirements heavy.

The realistic answer is different: cover the health risk properly, since that is what is actually insurable, and hold cash for the income risk. Income protection for illness and injury is available to the self-employed on good terms, and directors should look at executive income protection, paid for by the company and treated as an allowable business expense.

If you are a sole trader planning a purchase or remortgage, our sole trader mortgage guide sets out how lenders assess that income.

How does redundancy cover fit with your other protection?

Redundancy cover is one layer of four, and it is the smallest one. Ranked by the size of the financial hole each event leaves:

Life cover. Clears the mortgage on death. Cheapest premium, largest payout, the one to hold first.
Critical illness cover. Pays a lump sum on diagnosis of a specified condition. See our critical illness cover guide.
Income protection. Replaces income long term through illness or injury, potentially for decades. Employers should also look at group income protection for staff.
ASU or MPPI. Covers 12 months of payments after redundancy. Useful, but the shortest and narrowest of the four.

ONS data supports that ordering. The redundancy rate was 3.6 per 1,000 employees in March to May 2026, having fallen over the year, while long term sickness remains one of the largest single reasons for economic inactivity among working age people. Illness is statistically the bigger threat to a mortgage payment. Buy cover in the order the risk sits, not the order the fear sits, starting with life insurance.

Is redundancy insurance worth it?

It is worth it if you are employed on a permanent contract in a sector with real redundancy risk, you have less than three months of mortgage payments in accessible savings, and nobody else in the household could cover the payment. On those facts, roughly £40 to £70 a month buying 12 months of mortgage payments is a reasonable trade.

It is not worth it if redundancy is already on the horizon, because you will not clear the exclusion period, or if you are self-employed or on a fixed term contract, because you will not qualify. It is questionable if you hold a generous contractual redundancy package, six months of savings, or a second household income that covers the mortgage alone.

The honest position: for most borrowers, life cover and income protection do more work per pound, and redundancy cover is the fourth thing to buy rather than the first. But if the mortgage payment is the thing keeping you awake, MPPI priced against that exact payment is a clean and well-targeted answer.

Frequently asked questions

Does income protection insurance cover redundancy?

No. Standard income protection pays out only when illness or injury prevents you working. Redundancy is not covered. You need accident, sickness and unemployment cover (ASU) or mortgage payment protection insurance (MPPI) for job loss, and these are separate policies with a shorter maximum payout, usually 12 months.

Can you get insurance to cover redundancy?

Yes. Unemployment cover is sold either standalone or as part of an ASU or MPPI policy. It pays a fixed monthly benefit for a maximum period, most commonly 12 months, after a deferred period of 30 to 90 days. You must be in permanent employment and must buy the cover before redundancy is known or rumoured.

How much does redundancy insurance cost?

Cover is priced per £100 of monthly benefit. Full accident, sickness and unemployment cover typically runs at roughly £4 to £5 per £100 of monthly benefit for someone in their thirties. Insuring a £1,400 monthly mortgage payment therefore costs around £63 a month. Unemployment only cover is cheaper.

What is the difference between income protection and redundancy insurance?

Income protection is triggered by a health event and can pay until you recover or retire. Redundancy insurance is triggered by involuntary job loss and pays for a maximum of 12 to 24 months. Income protection typically replaces 50% to 70% of income; redundancy cover pays a fixed monthly sum you choose upfront.

How long does redundancy insurance pay out for?

Twelve months is the standard maximum on a single claim, and some policies offer 24 months at a higher premium. Payment starts after the deferred period you selected, usually 30, 60 or 90 days. Benefit is normally capped, with monthly limits around £2,000 to £2,500 common across the market.

Does redundancy insurance cover voluntary redundancy?

No. Every mainstream policy excludes voluntary redundancy, resignation, settlement agreements and dismissal for misconduct. Cover applies only to involuntary job loss. Insurers will also decline a claim if you were aware of the redundancy risk, including consultation or rumour, when the policy started.

Can the self-employed get redundancy cover?

Generally no. Standard unemployment cover requires permanent employment, so sole traders, contractors and company directors are excluded. A small number of insurers cover involuntary cessation of trading, but on narrow terms. Self-employed borrowers are usually better served by income protection for illness and injury, plus cash reserves for income risk.

What help is available if I cannot pay my mortgage after redundancy?

Contact your lender before you miss a payment. Under FCA rules lenders must consider forbearance, including a temporary interest only switch, a term extension, a payment deferral or a reduced payment arrangement. Support for Mortgage Interest can also cover interest on up to £200,000 of the loan at 3.66% once you have received Universal Credit for three months.

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