Although many employees may be worried about their jobs during the downturn, it is important to make sure they do not waste money on useless redundancy insurance, one financial expert has claimed.

David Kuo, head of personal finance at the Motley Fool, has explained that while more people are likely to lose their jobs as we careen towards a recession, people should make sure they check the terms of redundancy protection as failing to do so can result in consumers doling out cash for policies which offer little in the way of practical assistance.

Indeed, with more conusmers claiming jobseekers allowance during September, he noted that making sure people get the most from policies will be of growing importance. The financial analyst pointed to figures from the Office for National Statistics indicating that during the course of last month, the number of people claiming jobless benefits reached 31,800, taking the total dole queue to around 1.8 million. And with the possibility of further redundancies likely, it is possible that Brits around the country will waste substantial sums of money on redundancy insurance.

Mr Kuo warned that such policies can be misleading, expensive and unreliable when it comes to paying out. They are, he claimed, as badly sold as payment protection insurance products. Such policies have come in for much criticism recently after the Financial Services Authority found that they are often mis-sold to vulnerable customers.

While redundancy insurance is advertised as offering protection in the event of job loss, Mr Kuo pointed out that there were a number of limiting factors which could jeopardise peoples access to cover, thereby possibly forcing them to resort to savings or personal loans to cover costs during periods of unemployment.

One such restriction was that cover is commonly only extended to those who face compulsory redundancy, with no payouts offered for those accepting to leave work voluntarily. So too, those who have just started working should be aware that most policies only pay out after a policyholder has been in employment for longer than six months. Furthermore, many policies impose time restrictions before first payouts are received, Mr Kuo pointed out. In such a scenario, it is again possible that people will have to cover costs using loans, credit or savings until the payout comes through.

Advising, the personal finance expert said: “It is understandable that we want to insure against losing our jobs as the economy slows. But it is vital to ensure that you are buying something that does what it says on the tin. Redundancy insurance is expensive when compared to income protection insurance, which protects against loss of income if you cant work. Another option is to self-insure by putting aside at least three months worth of expenses. Buying insurance will give you peace of mind. But be mindful of buying useless insurance. It is tantamount to drawing a cake in the ground – its not much help if you are hungry.”

Earlier this year, the Motley Fool also urged those who had made bad investments to make sure they learned their lessons and got on to a firmer financial footing. For those who are looking to do so, a personal loan could be of assistance.

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