Although you can find private unemployment policies, most laid-off workers get help through the state or an employer’s supplemental unemployment benefits. You may receive payments on a monthly basis until you find another job or in a one-time lump sum. However, you typically must prove you weren’t fired by your own fault, such as poor job performance.
What is unemployment insurance?
Unemployment insurance is a policy that protects your income for a set amount of time after you lose your job. It supplements the government’s unemployment benefits, helping jobless workers retain their full salary. You can receive unemployment insurance either through your employer, the state government or a private policy.
However, this policy doesn’t pay out for resigning from your job, getting fired for poor performance or starting your own business. Private individual policies aren’t as common in the US as in European countries. Unemployment insurance may also be called supplemental unemployment insurance, job loss insurance, job insurance, layoff insurance or supplemental unemployment benefits.
How private unemployment insurance works
Unemployment coverage provides an ongoing contribution of an individual’s regular income, usually for around three months. Private policies fill in the gaps of a person’s income after the state’s unemployment insurance pays out. What to expect for employer or individual policies:
Employer supplemental unemployment benefits (SUB) policy
A few insurance companies specialize in supplemental unemployment insurance for employers. The benefit of this type of employer policy is offsetting the costs of a traditional severance package as much as 50%.
- Amount of coverage: The amount the employer takes out depends on the employee’s pay and how much the state unemployment pays. The more the state pays, the less coverage the employer needs. However, employees with high wages may need more coverage than low-wage workers.
- Type of payment: The employee receives the benefits monthly and can’t take the amount as a lump-sum payment.
- Time period insured: The employee receives benefits until the benefit period ends, usually 12 weeks, or until the employee finds another job. Some policies offer a bonus to those who are re-employed before the benefit period ends.
A separate layoff insurance policy
Individual layoff insurance policies may supplement the state’s benefits or work separately from the government. A policy that works separately from government benefits may not require you to file for state unemployment before cashing out for job loss.
However, the main two companies offering private policies aren’t currently accepting new customers. Those companies are IncomeAssure and SafetyNet.
- Amount of coverage: A supplemental policy should help you retain your previous income level. A separate policy may offer a low benefit amount that may not cover your bills.
- Type of payment: Supplemental policies may pay out monthly. Individual policies may pay monthly or in a lump sum.
- Time period insured: This varies based on the company but may go up to the standard three-month period. Lump-sum benefits only get paid out once.
Who offers private unemployment insurance?
This policy isn’t common, and there are only two companies offering private unemployment insurance in the US: IncomeAssure and Safety Net. However, neither insurer was accepting new applications — though they’re still servicing existing customers as usual.
Types of supplemental unemployment insurance
When you’re comparing supplemental unemployment insurance (SUB), you might come across several types in your research:
- Private individual policies — These types of policies aren’t as common.
- Employer-sponsored supplemental unemployment benefits — Paid by or offered through your employer.
- Union supplemental insurance — Job unions may offer SUB while you’re in between jobs. This is especially common in industries like automotive unions where seasonal or temporary work is common.
- Mortgage unemployment insurance — Pays your mortgage for a set time while you’re looking for new work.
- Credit insurance — Also known as payment protection or loan repayment insurance, pays your loans for you after losing your job.
How government unemployment insurance works
Most states take unemployment insurance out of your employer’s taxes as you work. You must have earned enough income to meet the criteria for an unemployment claim. Your state determines this by looking at your wages in recent quarters and calculating whether those wages meet the minimum threshold.
The minimum income required is different for each state and may be calculated differently by state. These calculations also determine how much benefit you receive each week and for how long. Most states will pay out up to 12 or 14 weeks.
An example calculation: Your total earnings for the last five quarters must equal three times your highest-earning quarter. So if you made $7,500 over the last 15 months and earned $2,500 in your highest-earning quarter, you should qualify based on this example.
Requirements for government unemployment benefits
To qualify for state unemployment benefits, most states require you to:
- Have earned a minimum amount of income — varies by state, example:
- Be ready and available to work
- Actively search for new employment
- Be unemployed through no fault of your own, such as a company downsizing
Can high school or college students qualify?
Yes, high school or college students who get laid off from work can qualify for unemployment if they meet the state’s requirements. Since students may have a short work history, they can have a harder time qualifying than an adult who’s worked regularly for several years.
Students who do seasonal work may or may not meet the minimum income — most states require wages to be earned in multiple quarters during the year.
One exception to this rule can come through federally backed unemployment programs that may be set up during economic emergencies. For example, the Pandemic Unemployment Assistance relaxed requirements for most workers to qualify for unemployment benefits.
What limitations should I watch out for?
Applicants should know the restrictions of this type of policy and the criteria for receiving a payout. Most policies will require that:
- The policyholder must prove involuntary the loss of their job was not related to their performance.
- To receive the payout, the policyholder must not receive any form of income other than state unemployment benefits. This includes casual, temporary or part-time employment of any kind.
- The employee must be employed continuously for a specified period, such as six months.
- The employee may receive the benefit one or more weeks after being unemployed.
- Workers finishing seasonal or contract work may not qualify for benefits.
- The employee must prove they’re looking for new employment.
- Benefits will cease once the policyholder has obtained paid work. This may be part-time or full-time employment.
How could these limits affect my unemployment income?
You could get denied unemployment benefits if you didn’t make enough income or are receiving another form of income, like freelance work. Consider that even low-paid work could disqualify you, so you might focus on long-term paid jobs instead.
Because not every job loss situation qualifies for state unemployment, consider working out a backup plan to supplement your income. For example, an emergency savings account can help if you get denied or for the period between losing your job and the benefit payment.
How can I get coverage for longer than three months?
The amount of time you receive supplemental unemployment may depend on how long you qualify for state unemployment benefits. This can vary and sometimes goes beyond three months, especially during a time of crisis like the COVID-19 pandemic. The time period may also depend on the insurance company you choose.
Who should consider job loss insurance?
You might consider unemployment or job loss insurance if you:
- Have family or dependents who rely on your income.
- Don’t have emergency savings or have little savings.
- Work in an industry where layoffs are common.
- Live in a state that doesn’t offer enough unemployment insurance to cover your bills if you get laid off.
- Own a business that could benefit from lower severance costs.
Does disability insurance cover unemployment?
Disability insurance doesn’t cover unemployment on its own. But you may be eligible for disability if you experience a disability and unemployment at the same time.
One good example is if you bought an own-occupation disability policy. This type of policy means you can receive benefits if a disability makes you unable to perform your current job. In this case, you can receive benefits while looking for another job and may also qualify for state unemployment benefits.
Keep in mind you’ll have to meet the elimination period, otherwise known as the waiting period, first. Most plans will require you to have the policy in place for a particular length of time before you can claim disability coverage.
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Does life insurance cover unemployment?
No, life insurance doesn’t cover unemployment due to job loss for any cause. However, some policies can give support to customers during strenuous financial circumstances.
To receive any sort of unemployment benefit, you would need to add a life insurance disability rider to your life insurance policy. In this case, the rider would pay out after an elimination period if you become totally disabled and unable to work. You can also receive money for expenses if you add riders for chronic or terminal illness or long-term care.
Unemployment premium waiver
This feature means your premium payments will get waived if you become unemployed. You might only receive this benefit for a certain number of months. In addition, you usually must show evidence that you’re seeking new employment or drawing state unemployment benefits.
Your best bet for job loss insurance is to file a claim through your state. However, you could talk with your employer about this extra benefit if you know they’re planning a severance package.
On the other hand, if you’re planning ahead for income protection, consider how a disability policy might help for unexpected injuries or illness.
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