The emerging market of private unemployment insurance

In July of 2011, The number of unemployed individuals in the United States was estimated at almost 14 million. Not all unemployed individuals qualify for unemployment insurance, but those who do may get up to 99 weeks of state-sponsored unemployment benefits. Some private businesses are getting into the business of providing additional insurance for unemployment.

The reality of unemployment

Unemployment may seem like a pretty sweet gig – money from the government if and when you lose your job. Unemployment benefits, though, often pay less than half of what the take-home pay for that individual was previously. Usually, the benefits work out to about 30 percent of the previous take-home pay. Unemployment also ends after 99 weeks. This means at the end of July 2011, more than 2 million individuals maxed out their unemployment benefits and no longer qualified for any benefits.

Lack of savings

Though the average American is paying down debt and saving more money, most people have less than two month’s worth of expenses in the bank. The result is that when an individual gets laid off and is unable to immediately find new employment, what little there is in savings is quickly exhausted.

New unemployment insurance products

Seeing a hole in the market, a few new companies are beginning to offer supplemental unemployment insurance, similar to supplemental medical insurance such as Aflack. The supplemental unemployment insurance is intended to pay out cash in the case of a layoff. This kind of insurance will pay about half of an individual’s income for about 24 weeks. Current premiums are dependent on occupation and location, but examples from one company are it costs $61.44 per month to receive a $931 monthly benefit for 6 months; a $150 per month premium gets a $2,411.66 benefit. Benefits kick in six months after an individual starts paying premiums.

Should you pay for supplemental unemployment insurance

Making the decision to get supplemental unemployment insurance or not should be made carefully. Paying out $61.44 for two years will cost $1,474.56 and pay out $5,586. That same $1,474.56 deposited into a 6.5 percent interest rate savings account will yeild $1,643.41. The payout is potentially income-saving, but it is a short-term payout. You should only purchase supplemental unemployment insurance if you have the room in your budget to pay for it; a strong savings account will always be more important because unemployment is not the only financial calamity that may hit.

Sources

Daily Finance
Help the 99ers
Huffington Post