Is Job Loss Insurance Worthwhile?

A group of laid off workers leaving an office building with each person carrying a box of belongings.
••• Steve Debenport / E+ / Getty Images

Job loss insurance is coverage for full-time workers that provide a temporary income in case the policyholder should lose their job. Many people worry about how they will pay their bills if they are laid off from work. If you don’t have funds in reserve to cover your expenses until you line up another job, there are companies that sell job loss insurance that will supplement your income if you find yourself in this unfortunate circumstance.

You may be eligible for state-provided unemployment insurance benefits if you lose your job through no fault of your own. However, unemployment compensation will be a portion of your previous salary, not all of it. Job loss insurance could help you to make up some of the difference while you are seeking employment.

What Is Job Loss Insurance?

Job loss insurance—also known as supplemental unemployment insurance—provides income in the case of a layoff. It may also cover a business closing, job elimination, or other covered separation from employment. Most policies don’t provide coverage if you quit, retire, or are fired from a job. There are several types of supplemental unemployment policies available:

  • Personal Supplemental Insurance Policy
  • Company Provided Supplemental Unemployment Insurance Benefits
  • Union Supplemental Insurance Coverage
  • Mortgage Unemployment Insurance
  • Payment Protection Insurance

Supplemental Unemployment Insurance Benefits

In order to receive benefits, you must have been laid off or terminated without fault. If you quit, retire, or are fired, you won’t qualify. Most job loss policies have a waiting period of 60 days to six months before eligibility to receive benefits. The waiting period begins after you have enrolled in the plan. If you lose your job sooner than that, you can't collect.

Some policies pay monthly amounts, and others provide a lump-sum payment. There may be a cap on the period under which you can collect benefits and on the amount you will be paid.

For example, SafetyNet—a private unemployment insurance provider—pays one lump-sum payment per plan year, ranging from $1,500 to $9,000 for unemployment and another payment for disability. The monthly premium costs for SafetyNet range from $5 to $30 a month. For other plans, you may be charged a percentage of your income or a flat dollar amount.

Take the time to research private unemployment plans before you sign up, so you fully understand the costs, eligibility requirements, and benefits.

Evaluating Supplemental Unemployment Insurance

Before you make that decision to purchase private unemployment insurance, evaluate your employment circumstances. Also, review your personal finances to determine if the risk is worth the expense of paying an insurance premium.

High Demand Career Field

If you have a job or career that is in high demand, it may be at least somewhat recession-resistant. If so, the time it will take you to find a new job will be shorter and you may not need coverage. In a strong job market, qualified candidates get hired quickly.

Existence of an Emergency Fund

You should have an emergency fund that would cover your expenses and tide you over during a period of unemployment. Experts recommend having on hand enough money to cover three to six months of living expenses. If you don’t have that much—or haven’t thought about setting up an emergency fund—it’s never too late to put aside whatever you can to start the fund.

Labor Union or Employer-Sponsored Benefits

Some labor unions and employers have benefit plans that provide supplemental unemployment compensation to laid-off employees. If you’re covered by one of those plans, you won’t need to consider private insurance.

If you have a collective bargaining agreement or an employment contract that includes a severance package, it may be enough to supplement your income.

Loan Protection Insurance

Some banks and insurance companies sell loan-protection insurance, referred to as payment protection insurance (PPI). This type of insurance covers payments on loans, a mortgage, car finance, or credit cards. It applies on a short-term basis when financial need is due to unemployment or temporary disability.

State Unemployment

Before you purchase job loss insurance, check your eligibility for unemployment benefits. Benefits vary based on where you live, but your state unemployment website should have information on qualification criteria. This information will also contain information on the maximum weekly benefits you would receive, and how long you may collect those benefits.

Keep in mind that state benefits are paid for a maximum of 26 weeks and for shorter periods in some states. Also, the maximum compensation will be a percentage of your weekly earnings, not the full amount.

Deciding If You Should Buy Job Loss Insurance

Your financial situation and the type of job you have will determine if buying private or supplemental unemployment insurance is worth the cost of the monthly premium. If you’re living paycheck to paycheck without savings to carry you through a period of unemployment, the extra funds can help to pay your bills.

If you’ve got an employer or union-provided job loss benefit plan or a mortgage or personal loan protection plan, your expenses may be partially covered. An emergency fund combined with state unemployment benefits may be enough to tide you over, especially in times of low unemployment.

Consider what expenses you could cut back on if you unexpectedly lose your job. You may be able to make up some of the loss of pay, especially if there is another wage earner in the family.

As with any insurance product, carefully weigh the pros and cons before you purchase a plan. Decide whether you need it and whether it provides enough coverage to ensure that your expenses are provided for.