Isn’t an emergency fund a better option?
Finally, Private Unemployment Insurance. But Will Anyone Buy It?
President Obama wants more of us to have insurance that would make up the difference between a job we might lose and any new, lower-paying one we might take. He said so in his State of the Union address in January.
But what if you couldn’t get a new job, or wanted to hold out for one that paid as much or more than your last one? That’s where private unemployment insurance may come in. It could make up some of the difference between your state unemployment check and your old salary.
When I last wrote about this in 2009, the prospects for insurance companies selling such coverage seemed grim.
But since then, a product called IncomeAssure has emerged that might serve at least some worried people well. In exchange for a monthly premium, you receive a check for half of your weekly pretax pay before the job loss minus whatever you get in your state unemployment check.
Anything this unique comes with a pile of catches and caveats — and legal ways to game the system. IncomeAssure’s FAQ tackles some of them, but I’ve done my own with some pointed additions.
So what am I buying here?
Let’s say you live in New York and earn $100,000 annually. The highest possible weekly unemployment check is $425. But your weekly pretax salary is $1,923. Half of that is $961.50. So if you signed up for the maximum benefit from IncomeAssure and then lost your job, you would receive a weekly check for $536.50, which is the difference between $425 and $961.50.
The product covers the gap for people earning up to $250,000. If you earn more than that, you’ll get a check (and pay a premium) based on only $250,000 in annual income. The check is taxable income, just like unemployment checks.
There is a two-week pause before payments kick in, and they continue for a maximum of 24 weeks after that. If your state doesn’t pay unemployment benefits for that long, IncomeAssure will add money to your check whenever your state stops paying. The extra amount will get you to that 50 percent replacement rate for the remainder of the 24 weeks.
What does it cost?
It depends on where you live, what you do for a living and how much coverage you want to buy. IncomeAssure has a calculator where you can get a quote. It uses recent unemployment data to figure out what to charge.
A construction worker who lives and works in New York, earns $100,000 and wants the biggest possible IncomeAssure check for the longest period of time (though you can pay less and get less if you want), would pay a whopping $181.29 each month, according to the IncomeAssure quote calculator. That kind of job is hardly recession-proof, after all. Someone working in the leisure and hospitality industry would pay $114.46, the second highest premium among the 13 categories. Those who work in public administration would pay the least: $34.75.
If you earn more, you pay more, since there’s a bigger gap to fill to get you to 50 percent of your former salary. In states like Florida, where unemployment checks are smaller, you’ll pay more, too. Policies renew each year, and premiums may go up or down depending on unemployment rates.
So what’s the catch?
There are bunch of them, aside from the two-week wait, the 24-week limit and the 50 percent cap.
You cannot collect a check covering your gap in pay if you lose your job within six months of signing up for the insurance. Why? Well, it’s hard to get hurricane insurance after the warnings have sounded, too.
“Anyone who knows they are going to be laid off after six months, I am happy to sell them an insurance policy,” said David Sterling, chief executive of SterlingRisk, which administers IncomeAssure. “I’d like to buy some lottery tickets and stock tips from them, too.” If you lose your job before six months have passed, you get your premium back, but nothing else.
IncomeAssure won’t pay you unless your state agency has approved you to receive unemployment benefits. This may be impossible or close to it if you’re a contractor or freelancer. Any severance will probably affect your eligibility, too. (Check with your state’s unemployment office for the specific rules.)
Isn’t an emergency fund a better option?
Yes. But many people can’t or don’t save enough to add up to the $12,875 or so that IncomeAssure may pay out to a $100,000 earner in New York, or they must dip into that fund for half a dozen other unpleasant surprises.