What is "Retrenchment Insurance"?

This is the idea - you don't have to work to get money, you get money when you have no work. Ideal idea? Sure, that's why it doesn't exist in reality.
So what is "Retrenchment Insurance"?

What exist currently is a misnomer - it don't promise a payout to the retrenched per se - but it does promise to give them the flexibility to restructure their insurance policies in the event of retrenchment. They can either choose to maintain their policies or to surrender it and get a premium refund. This is known as the "unemployment benefit programme" or "premiums waiver benefit".


Who is it best suited for?

It is best suited for individuals who are retrenched and have not done ample planning on their finances. These people are the ones who do not have enough "emergency cash" to cover their essential expense during the period of unemployment and will face the pressure to let their insurance policies lapsed due to the non-payment of premiums.

What are the pitfalls to look out for?

There are generally 5 points to look out for:

1) whether the premiums are being waivered or deferred. The former means that the policy holders need not pay back the premiums that were waivered as part of the benefit, the the latter means that they still have to pay back the premiums sans the interest.

2) whether there is any waiting period - some insurers only allow policy holders to file a claim after they have been involuntarily unemployed for 3 months.

3) whether this benefit is only valid for policies incepted during a certain period as well as how many times you can utilised this benefit.

4) whether there is an option for a total refund or do you have to keep the policy.

5) the narrow definition of "retrenched". It can be as specific as referring to those "employees who have been made unemployed for reason of redundancy or retrenchment by the employer and excludes employment terminated by reason of voluntary redundancy or disciplinary action". In other words, if you resigned or get fired - the benefit will not be applicable.

What differentiates policies offered by various vendors?

The main difference is that for some insurers, such a benefit has been an integral part of the policy while for others it is a 'new' additional feature that was concocted to serve the current needs of the market. It means that for the latter, this feature might only be applicable for a limited period of time, like within the first policy year. If you should get retrenched after that, you might not be able to utilize the benefit.

Another difference is the duration of the premiums waiver and deferment - the former allow for a maximum of 6 months while the latter can extend up to 1 year.

How applicable is the "Retrenchment Insurance"?

Essentially the important thing to note is this: life insurance is meant to be a long-term commitment, while retrenchment is a short-term event. So with proper planning such an issue of not having enough money to fund the premiums can be avoided in the first place.