What is retrenchment insurance and do I need it ?

The thought of being retrenched is a scary one. You will no longer be bringing in a salary and if you are the sole breadwinner in your household, your lifestyle will have to change dramatically. This can be a difficult and stressful time, but you can remedy this by being proactive and taking measures to ensure that you and your family are taken care of should this happen in the future.

One of the most effective ways to protect yourself and your loved ones is to take out retrenchment insurance, a type of insurance that will cover your salary for six months after you are retrenched. This allows you not to default on any loans, repayments or debts while you are unemployed. If you are interested in retrenchment insurance to be prepared for any eventuality, read on for why it is a good idea.
It replaces your income
If you are retrenched, you are no longer earning an income. But the bills will not stop coming in regardless of this fact. If you take out retrenchment policy insurance or retrenchment insurance, then you will receive a limited portion of your salary for six months or a pre-set time period.

This allows you to continue paying your debts and obligations, and allows your family to continue living as comfortably as possible until you find new employment. Having this policy in place allows you to look for work without having to worry about how you will continue to repay the bills. This is beneficial for those who are the sole breadwinner of the household or those whose extended family relies on them for financial help.
It pays out until you can continue working
This might vary according to the retrenchment insurance provider you have chosen, but you will receive a payout until you can find another job or until the end of the term of the insurance. This allows you time to find new work, which is essential in today’s economy.

You cannot afford not to work and your bills will still be coming in, which is where retrenchment insurance will come in handy. It is important that you make a concerted effort to find new work, as your insurance company will have a cut off point for the policy. If you have not found work within this period, it will be difficult to continue paying bills and other financial obligations without the help of your retrenchment insurance.
It helps if you are self-employed
If you are self-employed or if you run your own business, retrenchment insurance or income protection insurance is vital. If your business should unexpectedly have to close, you will be left without the ability to repay any business loans and without a salary.

Protecting your income as a small business owner or as someone who is self-employed will give you peace of mind should you have to close up shop. This will allow you to repay loans and debts as well as find work or begin another startup. You will need to discuss options with your insurance broker if you are self-employed, as some providers might see you as a high-risk applicant and might offer you higher monthly premiums because of your employment situation.
You will not have to dip into your savings
If you have been meticulously saving money each month and are suddenly retrenched, having retrenchment insurance in place will mean that you will not have dip into these savings in order to survive the coming months.

You will be able to keep those savings for what you planned to use them for, instead using the insurance payments to live off of. You can use some of your savings to supplement the retrenchment insurance if you feel that you need more to repay your debts. But, ultimately, you should not have to use these savings at all. Keeping your savings untouched will also help once the retrenchment insurance has stopped the payouts and you have battled to find work.
It helps with illnesses during this time
If you become ill during your retrenchment period, having insurance will allow you to pay any doctors bills. You can go to the doctor or the hospital and not have to worry about whether or not your bill will be paid, which can decrease stress significantly.

Being ill while you are retrenched is stressful, but you can allay this stress by taking out insurance on your income. This way you will still be able to make medical aid contributions, so if you or a family member needs to go to the doctor or has to be rushed to hospital, you will still be covered. Medicines are becoming more and more expensive and if you are not receiving a salary, it can become debilitating.