The Bureau of labour Statistics will release September unemployment numbers on Friday, and if the trend from the last several months continues, the unemployment rate will hover just over 9 per cent.Amidst concerns over job security and the limitations of state unemployment benefits, Assura Group of New York introduced an insurance product called IncomeAssure to bridge the income gap between workers’ salaries and state unemployment benefits, which often max out well below the worker’s previous salary.
For those with salaries of $250,000 or less, IncomeAssure works in combination with state unemployment benefits to bring them up to half of their former wages for up to 24 weeks. “Obviously with the current unemployment situation, it’s in the news every day,” says Leslie Nylund, CEO of Assura Group of New York, which debuted IncomeAssure in mid-July. “Everyone has a friend, family member, neighbour who’s been laid off. This allows people to have a good night’s sleep and be able to pay their short-term financial debts.”
But as family budgets get stretched tighter and tighter, does it make sense to buy supplemental unemployment insurance?
That remains to be seen. Loretta L. Worters, vice president of the Insurance Information Institute, says it’s an intriguing concept but with high unemployment, “I don’t know if insurance companies will see this as a financially good offering.” She notes that while unemployment insurance is gaining popularity in the United Kingdom, this is the first time it’s been offered stateside. “There’s some similarities to mortgage insurance that protects you if you lose your job,” Worters adds.
According to Nylund, IncomeAssure calculates premiums based on your industry, salary, and the state you work in. Currently, the policy is available in 41 states, and the company anticipates it being available in 46 or 47 states by the end of the year.
“For example, if you’re a construction worker in Florida, you’re gonna be a lot more expensive to insure than a school teacher in New Jersey,” explains Nylund. The salary cap is $250,000, so workers with a higher salary pay premiums based on a salary of $250,000, and they would collect benefits based on that $250,000 salary.
The policy has a six-month waiting period following the initial enrollment (that waiting period does not apply to policy renewals), so if you lost your job during that first six months, you wouldn’t be able to collect benefits, but the company would return your premiums. You’d also have to wait three years before re-enrolling because of the underwriting requirements. Workers who’ve been laid off within the past three years, independent 1099 contractors, and those who work for an employer with less than 50 employees are not eligible, although that last restriction may be changing in the future, says Nylund.
Following the six-month waiting period, policyholders who lose their job can start collecting benefits after an elimination period of two weeks. Although IncomeAssure works in combination with state unemployment benefits, IncomeAssure payments stop after 24 weeks even if government benefits continue beyond that period.
The duration of unemployment benefits vary by state, but BLS numbers from August show that around 43 per cent of unemployed workers have been out of a job for at least 27 weeks. While Nylund says IncomeAssure could help people buy time without having to settle for a job they’re overqualified for, obviously that may not be the case for everyone.
So, why not self-insure by saving the money that would have gone to insurance premiums?
“People just don’t do it,” says Nylund. “That’s why they know they’re better off doing forced savings through a 401(k) because otherwise they tend to spend it.”
Worters agrees that not everyone puts aside money for this purpose, but she urges consumers to do the maths and see how much money you’d be spending versus the benefits you’d collect. “If you feel the price is a little high, you might be better of just putting that money in the bank and saving,” she says, adding that with any insurance policy, you can check the company’s rating with your state insurance department. “An A or A+ rating is the best it can be,” she adds. (IncomeAssure is underwritten by Great American Insurance Company, which was rated “A” (Excellent) by A.M. Best, as of Feb. 14, 2011.)
Because the policy has a six-month waiting period following the initial enrollment, it’s too soon to tell how many policyholders will file claims and whether the concept will work long-term.
However, Nylund is predicting that as consumers deal with an uncertain job outlook, supplemental unemployment insurance will become much more commonplace. “We have statistics that have told that you have a higher likelihood of becoming unemployed than becoming disabled or dying,” she says. “I believe at one point down the road, unemployment insurance will be as much a household name along with life insurance or disability insurance.”