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Everything You Need to Know about Retrenchment Insurance

Pension schmension. Who thinks about retirement with the imminent threat of retrenchment hanging over you? For anyone under the axe or finding themselves jobless, retrenchment insurance seems like a great idea.

What is Retrenchment Insurance?

Retrenchment insurance is insurance that covers you for an agreed pay-out and agreed amount of time should you get retrenched. The time and amounts will be specified in your insurance policy.

Many insurance companies do not yet offer retrenchment as a standalone insurance policy. Some insurers include it as a benefit on other forms of insurance, such as car and home insurance, or even life insurance. Here’s how it works.

How it Works in South Africa

What Does Retrenchment Insurance Cover?

Retrenchment insurance covers the insured’s salary in the event that he or she gets retrenched. This means that if the policyholder is forced to leave his job as a result of the company downsizing or saving on costs, then the insurance company will pay out a portion of the insured’s salary for a limited time, usually six months.

The pay-out for the six months allows the insured to cover living expenses and obligations so that he or she does not default on payments and lose assets. The pay-out is usually a portion of the insured’s salary and not the whole gross salary. How much they pay out depends on the insurance company. This gives the insured enough time to find another job and look after his or costs and expenses him- or herself.

Retrenchment insurance as a Benefit

Many insurance companies offer this type of cover as a benefit on other insurance policies, such as car insurance. When retrenchment cover is a benefit and not a standalone policy, it does not cover the insured’s salary, but rather covers the insured’s premiums for that cover. That is, if your car insurance includes retrenchment cover and you are forced to leave your job, the cover will pay for the car insurance premiums for a period, usually six months. This prevents you from defaulting on your payments and voiding your car cover.

Some insurance companies’ retrenchment cover may include car payments so that the insured does not default on these and lose his or her car. This type of cover may also be available to home insurance clients and life insurance clients so that the insured does not default on premiums.

Note: retrenchment cover does not cover the insured should he or she be dismissed legally (that is, if he or she fails to live up to his or her contract of employment) or if he or she quits, which is voluntary.

Want to get retrenchment cover so you can start saving for retirement? Fill in our online form and we’ll source a range of quotes for you.

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