Retrenchment insurance

2017-05-11 06:02

YOU can protect yourself and your family against the financial crisis that can result from retrenchment by taking out an insurance policy specifically designed for this type of misfortune.

Retrenchment cover is not widely offered by South African insurers, and the benefit is relatively small, but it can tide you over the months during which you are looking for work or setting up your own business.

Young people in the workplace are more at risk of retrenchment than is generally supposed.

Nicholas van der Nest, the director of risk product innovation at Liberty Retail, says Liberty’s 2015 claim statistics show that employees in their 20s and early 30s who are establishing their careers – what Liberty calls “young achievers” – have a high risk of being retrenched.

“Young achievers claimed mainly for income protection benefits, with retrenchment the main cause of claim.

“Of total claims among young achievers, retrenchment claims accounted for 15.9 percent,” he says.

There is the tendency for people to take out insurance only when the probability of loss is high.

An example is joining a medical scheme only when you suspect your back is about to give in or, in this case, taking out income protection cover when your company is downsizing and you have a strong suspicion that you’re about to lose your job.

The cover generally provides you with a tax-free monthly income as a percentage of your salary for up to six months.

The common conditions are:

•You must be a salaried employee with a full-time, permanent job. You cannot be an owner of a business, self-employed, a freelancer, or working part-time or on a contractual basis.

•You must have been in employment without interruption for at least two years and in your current job for at least a year.

•The cover must have been in place for at least six months before you can claim.

•The cover pays out only if you are involuntarily retrenched as a result of your employer downsizing or facing closure, and only after it has followed a legitimate retrenchment process in terms of the Labour Relations Act.

It will not pay out if you take a voluntary retrenchment package, and you cannot have declined a reasonable offer for an alternative job from either the employer that retrenched you or another potential employer.

It will also not pay out if you are dismissed because of misconduct.

•You may be required to provide proof of unemployment each month, through registration with the Unemployment Insurance Fund (UIF) over the six-month period.

•The benefit is not affected by whatever you claim from the UIF and whatever your company pays you as a severance package.

•You can claim more than once on the same policy, provided certain conditions are met.

This article is an excerpt from Business Report.

You could contact me on 083 399 3905, my office on 032 944 3051 or e-mail me on for an appointment or further information and any other financial advice.


The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licensed financial service provider.

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