Retrenchment insurance – the one you hope you never need

retrenchment

When Chantal Ogle returned to work after the December holiday and was told that the IT company she works for was no longer considered part of the holding company’s “core business”, she was taken by surprise. However, she soon realised that she would be able to use this opportunity to set herself up as an entrepreneur. She contacted her financial adviser to help her claim on her retrenchment insurance, the one she thought she would never need.

Chantal was lucky because when she created a financial plan, she included retrenchment insurance or income protection as it is better known. Income protection insurance will pay you up to 75% of your taxable salary for a maximum of six months if you are retrenched. For example, if you earn a salary between R20 000 to R25 000, the maximum pay-out you would receive from Standard Bank life insurance on an income protection policy is R18 750. The monthly premium you would have to pay for this cover is R282.06. The idea is that retrenchment insurance payments over a six-month period will allow you to meet your financial commitments and find another job or start a business, as Chantal intends to do.

Unfortunate as it may sound, retrenchment insurance is a harsh reality that South Africans need to prepare for. According to the Adcorp Employment Index released earlier this year, the retrenchment rate is currently at a 10-year high. In January alone, as many as 36 290 jobs were shed – mainly in the manufacturing and construction industries.

When you claim on retrenchment insurance, you will have to prove that your retrenchment was in line with labour law requirements. This means that the retrenchment must be subject to certain conditions, for example, adverse business conditions, a restructuring within the business or the introduction of new technology. Under the Basic Conditions of Employment Act, you are entitled to one week’s pay for every year of service. This is usually part of your retrenchment package and employers can choose to increase this amount depending on your performance.

If you are retrenched, make sure you contact your creditors immediately so that they are aware of the situation and can help you manage your debt. For example, a bank may provide you with a payment holiday (maximum six months) or reduced repayments until you are back on your feet. Short-term insurer, iWyze offers a six-month retrenchment premium waiver, which means that if you are retrenched, you don’t have to pay your short-term insurance premiums for up to six months. Your cover will continue uninterrupted during this time.

Exclusions

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Note that retrenchment insurance will not cover you if you are fired or you quit your job. Other terms and conditions may include:

  • A waiting period – this will vary between different insurers from one month to six months.
  • You must be permanently employed for at least one year with the same employer before you can claim.
  • Specific occupations may be included such as self-employed people, directors and contractors.

Where you can get cover:

Note that not all income protection policies cover retrenchment. The following providers do offer income or salary protection policies that will pay out if you are retrenched:

  • Liberty – retrenchment protector.
  • Standard Bank – salary protector.
  • Frank.Net – salary protection cover.
  • Old Mutual – lifestyle adjustment cover.

In addition to this, service providers such as your bank or short-insurer may offer you premium waivers if you are retrenched. This means you will not have to pay your monthly premiums or repayments during this time.

  • ooba – this mortgage originator includes a retrenchment benefit as part of its credit life policy offering for your home loan.
  • Absa – offers optional cover which will pay 10% of your average outstanding credit card balance for four months if you are retrenched.
  • Liberty Investments – a premium waiver for six months.
  • First for Women – a premium waiver benefit for up to six months.

This article was first published in City Press on 1 June 2014. 

 

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