What If You Lose Your Job?

No one wants to think about the possibility of being retrenched or of losing their job in any way – basically, of the cash flow drying up. But what if it does?

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If you don’t have the precautions in place to guard against retrenchment, you could struggle to meet your financial needs and obligations while you search for new employment. We asked Mariette Tappan, executive financial advisor at Liberty, about retrenchment insurance.

What is retrenchment insurance?

‘Retrenchment is just one of the risks that could negatively impact your income. A long illness, for example, is another. The term commonly used is ‘income protection’, and it’s a flexible package of benefits with the aim of protecting you against a wide range of risks. You decide on the extent of your coverage based on your life stage and the likely risks you might face. The volatile economy is a key risk, so it’s important to find ways to counter that.’

Who is most likely to be retrenched – a young employee, or someone closer to retirement?

‘No one is immune. Irrespective of your age, retrenchment can be financially crippling. If you’re young, it could leave you with no income to meet financial commitments like car and house repayments. If you’re older, finding new employment after being retrenched might be much more difficult, and a loss of income for any sustained period might inhibit your ability to retire at your intended retirement age or retire at the standard of living you’re accustomed to.’

How do you go about getting this insurance?

‘Consider retrenchment as part of your financial plan, and chat to your insurer about it. Most insurers offer retrenchment cover. Retrenchment benefits are usually taken out with life cover benefits, or as part of a broader income protection package of benefits.’

Some employers offer perks like accident insurance; do they offer retrenchment insurance too?
‘Some employers do provide insurance benefits, but retrenchment protection tends not to be included because of the direct influence that the employer has over the likelihood of retrenchment occurring.’

What determines one’s insurance premiums?

‘With the mounting pressure on budgets in these tough economic times, most of us might feel we can’t afford to comprehensively cover ourselves against this risk. However, you should explore the possibility of taking at least a small amount of cover to ensure that your essential monthly expenses can be met over a period of retrenchment. It may be more affordable than you think — cover that would pay R10 000 per month for up to six months and for up to two different periods of retrenchment currently costs less than R100 per month.’

Is everyone eligible for this kind of insurance?

‘Everyone within the legal age who has an income and can afford to pay a monthly premium should be eligible for retrenchment insurance. Some insurers have underwriting standards that determine eligibility, and some require a medical examination — your health status might influence your access to the cover. Certain industries and occupations may be excluded based on a high pay rate.’

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