Worried about redundancy? Better buy insurance soon

Some insurers may be poised to stop offering new unemployment insurance policies, fearing that more people will soon be making claims. Unemployment cover pays an income if the policyholder is made redundant. The idea is that the policy pays enough for the claimant to live off until they find a new job. It differs from payment protection insurance, which only pays enough to cover a specific loan or credit card debt.

One of the UK's biggest insurers, Norwich Union, withdrew its unemployment cover last week and there are now concerns that others will do the same. Emma Walker, the head of protection at price comparison site Moneysupermarket.com, said: "When a big provider like Norwich Union pulls out of a market, then others will tend to follow suit. A few smaller providers have already pulled out, such as Hitachi Capital and Pinnacle Insurance. The message is, if this is a product you need, buy it quickly," she said.

The move by insurers comes as the economic gloom deepens. Mervyn King, the Governor of the Bank of England, Prime Minister Gordon Brown and Chancellor Alistair Darling have all warned that the UK is heading into a recession.

The number of people losing their jobs is rising at the fastest rates for 17 years, with the number of jobless jumping by 164,000 to 1.79 million between June and the end of August. Many of these people will be relying on support from their unemployment insurance policies.

Mrs Walker said people with active unemployment insurance policies will not have their policies cancelled, despite what may be written in the small print of their contracts: "Customers who have a policy should be okay. Policies do allow providers to cancel if they wish, but I am told that no one is going to do this," she said.