Don't lose out if you lose your job!

With unemployment rising to a 16-year high, use these six safety-nets to protect yourself from redundancy...

Although the UK economy returned to growth in the final quarter of 2009, the recovery in jobs is lagging behind.

Indeed, the unemployment rate hit 8% in March and, with 2.51 million people out of work, unemployment is higher than at any point since December 1994. That said, there are still 28.8 million workers in the UK, so more than seven in 10 (72%) of people of working age have a job.

What if you lose yours?

If you suddenly found yourself out of work, how would you cope?

So far, almost all job cuts have come from private-sector organisations cutting back. However, given the massive spending cuts needed to bring down the UK’s budget deficit, tens of thousands of public-sector workers soon face the axe.

Therefore, regardless of how secure you believe your job is, there is always the possibility that it could be taken from you. This applies even if -- like me -- you run your own business, as 4,082 companies folded in the first three months of this year in England & Wales.

In my view, it’s best to hope for the best while planning for the worst. So here are six ways to keep the wolf from the door...

Six safety-nets for the jobless

Protection tends to come in three flavours: that provided by the state, that provided by an employer, and your own resources. Let’s start with the state safety-net:

1. Jobseeker’s Allowance and other benefits

There is a wide range of benefits aimed at people who are out of work (or unable to work for health or family reasons). The main benefit for unemployed people over 18 is Jobseeker’s Allowance (JSA). If you’re under 25, you get £51.85 a week; for over-25s, JSA is £65.45 a week.

However, even the higher rate of JSA amounts to just over £3,400 a year, so it’s not enough to live on. What’s more, although Contribution-Based JSA isn’t means-tested, it’s paid for only 182 days and you can’t get it unless you’ve paid National Insurance for two tax years. The alternative -- Income-based JSA -- is means-tested, so you might not get it if you have other income, savings or a working partner.

State benefits are fiendishly complex, so find out what you can claim using the online benefits-checker at Entitled To.

2. Statutory redundancy pay

If you’ve worked continuously for your employer for at least two years, then you’re entitled to statutory redundancy pay (SRP) when you are made redundant. Also, if your employer doesn’t require you to work out your notice period, then you are contractually entitled to ‘gardening leave’ or pay in lieu of notice (PILON).

Statutory redundancy pay varies according to your age, wage and length of service, but it is hardly generous. At most, SRP is 1.5 weeks’ pay for each full year of service where you were 41 or over, and this payout is capped at £380 a week.

This handy ready reckoner at DirectGov shows you how much SRP you are entitled to. For example, a 40-year-old man being made redundant after 15 years’ service and earning £700 a week before tax would get SRP of £5,700 -- or just over eight weeks’ wages. It’s not a fortune, is it?

3. Employer redundancy pay

As well as SRP, you may be contractually entitled to extra redundancy pay from your employer. Indeed, to soften the blow of redundancy, some companies offer generous payouts, such as four to six weeks of full pay for every year of service. As an added bonus, the first £30,000 of a redundancy payment is tax free.

Therefore, check your individual contract and your organisation’s redundancy policy to find out what you would receive were you to be forced out of your job.

4. Savings

In my view, nothing is better at keeping one’s finances afloat than good old-fashioned cash. That’s why I urge people to keep a decent cash cushion in a top-paying savings account. Ideally, you should have three to 12 months’ living expenses tucked away in an easy-access rainy-day fund.

Find out more about the best savings accounts in My top seven savings accounts.

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5. Payment protection insurance (PPI)

You may be tempted to buy payment protection insurance (PPI) to protect you when you’re out of work, sick or injured. PPI covers the monthly repayments on a credit card, personal loan or mortgage if you are unable to work for an extended period, usually 30 days or more.

However, as someone who worked in the PPI market for more than a decade, I would urge you to think twice. I know all too well that PPI policies are massively overpriced, widely mis-sold, and riddled with get-out clauses. Personally, I would never buy a PPI policy, especially given that the Competition Commission is about to ban PPI at point of sale.

6. Income insurance

One cheaper alternative is income insurance, which you can buy to protect you against accidents, sickness and unemployment. The stand-alone version of this insurance is much cheaper than the PPI pushed by lenders, as the built-in commissions are much, much lower.

Indeed, Best Buy independent policies can cost as little as a fifth of the price of those sold on the high street.

You can find out more about income protection in Three essential ways to protect your family.

Finally...

It’s all too easy to sit back and think that redundancy is something that happens to other people. Alas, what seems safe today often becomes insecure tomorrow. Hence, it makes sense to take steps to protect yourself, your family and your home from the very real risk that you could lose your job one day!

More: Top savings tips for the over 50s | What a new government means for you