While we all know that having six months’ worth of income saved up in case of emergency is an important financial goal to achieve, most Americans’ emergency funds are non-existent or not nearly enough to cover a period of unexpected unemployment.

The most recent recession proved this point. In today’s market, job security and the income it provides, is less secure than ever. State unemployment insurance (UI) benefits and severance plans take away some of the sting, but they may not be enough to keep a family afloat financially during a period of unemployment. Fortunately for middle and upper-income employees, a new supplemental insurance program has been created to address this challenge.

Many employees are unprepared for unexpected income loss and most cite job security as a major concern, according to MetLife’s study of employee benefit trends. Although every state has an insurance program for involuntary unemployment, each state has different regulations governing eligibility, benefit levels and duration, according to the Center on Budget and Policy Priorities, “Introduction to Unemployment Insurance.”

According to the study, the average unemployment benefit is a little more than $300 per week. Even in states with higher than average maximum benefits, like Pennsylvania and New Jersey, benefits barely cover the basic cost of living let alone other financial obligations.

A unique voluntary benefit

Group supplemental involuntary unemployment insurance could be the answer for employees facing a job loss and for employers looking to provide a valuable benefit. When combined with state UI benefits, this type of coverage can replace up to 50% of income.

The chart below illustrates the impact of inadequate state UI benefits on three different middle and upper income employees. It also illustrates how involuntary unemployment insurance benefits supplement the state UI benefits to increase total income to the 50% income range that lower income employees receive.

Annual Salary

Weekly Salary

NY State Weekly

Benefit */ Salary Replacement %

Supplemental Involuntary Unemployment Weekly Benefit

Total Weekly Benefit/Total Replacement %

Employee 1:

$75,000

$1,442

$420/29.1%

$301

$721/50%

Employee 2:

$100,000

$1,923

$420/21.8%

$542

$962/50%

Employee 3:

$250,000

$4,808

$420/8.7%

$1,984

$2,404/50%

* maximum benefit as of 10/5/14

Involuntary unemployment insurance is a voluntary product that fills the financial gap between an insured’s state unemployment benefits and their former income.

Employers find involuntary unemployment insurance attractive because:

  • It helps protect their workers against one of life’s great financial risks (You are much more likely to become unemployed than become disabled or pass away if you are under 45)
  • It compliments their employee benefit offering, helping to attract and retain the best and brightest talent;
  • It can be designed as voluntary or partially/fully paid value-added benefit for employees.
  • Employers could use this kind of benefit to replace part or all of their current Employee Severance program.

Involuntary unemployment insurance protects a real financial risk. It’s simple to understand and has great potential as a voluntary product. A new product can become a potential door opener for any agency with employers. In today’s rapidly moving business environment, everyone understands the likelihood of unemployment. Thus, the product is an easy sell to employers, who will appreciate its appeal to employees.
In today’s health benefits environment, it’s increasingly difficult for organizations to find cost-effective insurance coverage that meets their needs. Brokers who can step in and learn the business of voluntary benefits and some of the newer products hitting the market will be well-suited to bring in new clients and keep them protected against financial loss with a combination of relevant and cost-efficient solutions.     

Fleet is president of AmWINS Group Benefits, a wholesale broker of comprehensive group insurance programs and administrative services. Reach him at asksam@amwins.com.

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