The case for insuring yourself against job loss

The Savage Truth

What happens to your finances if you lose your job? It's a frightening question that keeps many people up at night -- despite the improving job numbers. After all, economic statistics may be comforting, but losing your job is likely to be devastating.

We all know we should have a savings reserve, but that's tough to do these days. And state unemployment benefits are meager, certainly not enough to maintain your current lifestyle and pay your bills. That's where supplemental unemployment insurance comes in -- a new kind of insurance policy designed to give you larger weekly unemployment benefits if you lose your job.

So far, the only such policy is offered by IncomeAssure.com and underwritten by Great American Insurance Co. (rated A+ by A.M. Best). Here's how it works:

Coverage

Most states currently provide 26 weeks of unemployment coverage with no federal extensions. (Some states provide far less coverage; Florida currently offers only 12 weeks.) And no matter what your previous job paid, you'll likely receive less than $400/week in government aid.

(To check your state's current level of unemployment benefits, consult www.savingtoinvest.com/maximum-weekly-unemployment-benefits-by-state/)

IncomeAssure pays benefits based on your salary -- up to a maximum salary of $250,000 -- and your job category, as well as the state's current level of unemployment. You pay monthly premiums -- and if you lose your job, you get a substantial boost in weekly unemployment benefits as a result of owning this insurance policy.

Pricing

The amount of the annual premium typically ranges from 0.5 percent to 2 percent of your income, based on the factors noted above. For example: If you work in Illinois in the financial services industry and your salary is $200,000, your monthly premium would be $178.97, according to the company. But if you lose your job, you would receive weekly benefits of $1,508.08.

To check how much you could receive in weekly supplemental insurance, use the calculator at www.IncomeAssure.com.

Note: The premium price is guaranteed for 12 months. If you choose to renew at the end of a year, the price could rise, based on your state's unemployment statistics and any changing factors related to your employer industry category.

Process

This supplemental insurance starts when you file your state unemployment insurance claim. To activate your policy you notify the insurer when you receive your first unemployment check. There is a two-week delay in starting benefits, which continue for a maximum of 24 weeks. (Even if your state benefits continue, this policy ends after 24 weeks of payments.) You can get your payments by direct deposit or paper check after verification of each state aid payment.

When to purchase

You have to be employed to buy this insurance and must purchase before your company announces layoffs. It's pretty obvious that people anticipating job loss will rush to purchase this policy! (It's called "adverse selection" in the insurance industry.) So you must purchase the policy six months before losing your job. If you lose your job before paying six months of premiums, the amount you paid will be refunded -- but you won't get the insurance. You can apply online at IncomeAssure.com, and you may get a discount if you pay a full year in advance.

Taxes

The premiums are tax deductible (based on an IRS letter received by IncomeAssure), and the benefits are considered taxable income in the year in which they are received.

What you are buying with this supplemental unemployment insurance policy -- as with all other insurance -- is peace of mind. Like life insurance, disability insurance or even long-term care insurance, this coverage is something you hope you won't use in the near future. But after all those sleepless nights worrying about your job, this new benefit is bound to give you a good night's sleep at the very least. And that's The Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
48°