What Is Private Unemployment Insurance?

Definition & Examples of Private Unemployment Insurance

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Private unemployment insurance is an insurance product intended to supplement state insurance benefits in the event that you lose your job. It's not intended to replace government insurance benefits or replace the wages you earned when you were working.

Learn more about private unemployment insurance and other options in case of job loss.

What Is Private Unemployment Insurance?

Private unemployment insurance is an insurance policy you buy for yourself to supplement your income if you become unemployed.

When you submit a claim, this insurance will give you additional payments on top of the base unemployment compensation that you get from federal and state unemployment. Using private unemployment insurance gives you the option to supplement your unemployment benefit income and helps fill the gap between what you receive in benefits and the weekly wages you received when employed.

  • Alternate names: Supplemental unemployment insurance, job loss insurance, layoff insurance, income protection insurance

How Does Private Unemployment Insurance Work?

If you lose your job, you can apply for unemployment benefits. The U.S. Department of Labor runs unemployment insurance programs jointly with the states to provide cash benefits to eligible workers. Each state sets its own eligibility guidelines and payment amounts within federal guidelines. In general, if you were laid off or otherwise terminated through no fault of your own and meet your state's requirements for time worked (or wages earned), you're probably eligible to receive benefits through the Federal-State Unemployment Insurance Program.

However, the amount of government benefits you may receive varies by state, and caps on these benefits may not allow you to maintain your lifestyle.

In general, benefits are based on a percentage of your earnings over a one-year period, up to a state maximum amount.

For example, in Florida, you're able to receive a maximum weekly benefit of $275 for up to 12 weeks. But you may be accustomed to a weekly paycheck of much more than that to cover your bills and expenses.

Insurance products called private unemployment insurance were created to give you a way to supplement your government unemployment payments. If you were eligible to buy a policy and paid all your premiums as agreed, then in the event of a job loss, you could collect your private unemployment insurance benefits in addition to your government unemployment benefits.

Private unemployment insurance is not a common insurance product. The two main providers, SafetyNet and IncomeAssure, are no longer accepting new policies.

Two providers of private unemployment insurance are IncomeAssure and SafetyNet. Though they aren't accepting new customers, they each are still servicing existing customers. 

IncomeAssure

IncomeAssure was a product offered by the Great American Insurance Group. A policy offered supplemental cash benefits—up to 50% of your wages—if you lost your job due or got laid off and were eligible for unemployment insurance. Payments followed the federal and state unemployment insurance schedule.

SafetyNet

SafetyNet took a different approach to provide a benefit to their policyholders in the event of unemployment. SafetyNet allowed the policyholder to choose between several different levels of coverage. It didn't pay out on a weekly basis, but rather offered a lump sum payment if you found yourself without a job.

Alternatives to Private Unemployment Insurance

There are other ways to prepare yourself financially in case of job loss.

Supplemental Unemployment Benefit Plan (SUB)

A supplemental unemployment benefit plan is a tax-exempt Section 501 (c) plan created by a company to help workers in the event of a plant closing, downsizing, or reduction in force. It provides laid-off workers with benefits to supplement what they receive from state unemployment. You'll typically see SUB plans where seasonal layoffs of union workers are a common occurrence.

Emergency Fund

A common defense against the possibility of layoffs is shoring up a robust emergency fund. Instead of paying premiums toward insurance, set aside money every month into a special savings account created to hold a buffer against job loss. Resist the temptation to use these funds for anything except supplementing your income in the event of a termination.

It's certainly easier said than done; 37% of Americans would not be able to pay a $400 emergency expense without borrowing money or selling something. But with state unemployment benefits providing only a fraction of lost wages, a supplemental fund of some sort is a necessity.

Key Takeaways

  • Private unemployment insurance is an insurance product that is designed to help supplement your state unemployment benefits if you lose your job.
  • Private unemployment insurance may be difficult to find, as the two main providers, IncomeAssure and SafetyNet, are no longer issuing new policies.
  • Building a robust emergency fund is another way to protect yourself against the possibility of losing your job.

Article Sources

  1. U.S. Department of Labor. "How Do I File for Unemployment Insurance?" Accessed July 27, 2020.

  2. U.S. Department of Labor. "State Unemployment Insurance Benefits." Accessed July 27, 2020.

  3. Florida Department of Economic Opportunity. "Claimant FAQs (New)." Accessed July 27, 2020.

  4. SHRM.org. "What Is an Unemployment Sub Plan, and How Can It Help My Employer Save Money During a Reduction in Force?" Accessed July 27, 2020.

  5. Federal Reserve. "Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020," Page 21. Accessed July 27, 2020.