Private unemployment insurance exists – it’s limited, but it exists!

Everyone knows that it’s important to have that reserve of funds stashed away in case of an emergency or a layoff, but it’s often hard to establish it—especially as a young professional or an entrepreneur. Even more daunting is building that reserve of funds to cope not only with a potential emergency, but a job loss.

If you lose your job, you may be eligible for unemployment benefits from your state — depending on a whole host of factors, including cause of termination and your classification as an employee. Often those state benefits are very limited in either duration or in payment, which doesn’t provide the newly minted job seeker with much in the way of time or funds to keep things afloat while they look for their next job. To offset that limitation, there are private unemployment solutions that do exist, albeit limited in scope.

For years, IncomeAssure, which began in 2011 and was issued by SterlingRisk and backed by Great American Insurance, was the largest private unemployment insurance policy. With about 1,000 active policyholders and over $1 million in claims paid out as of 2016, the policy is no longer accepting new applications for coverage as of late 2018, but is still insuring those with an active policy.

“It has been disappointing that we haven’t been able to find a cost-effective way to get the word out that this exists,” David Sterling, SterlingRisk’s Chairman and CEO, said, speaking to The New York Times in 2016. “It’s also understandable. If nobody is aware that something exists, it’s hard for people to find it if they don’t know to look for it in the first place.

With the closure of IncomeAssure as an avenue for new coverage, SafetyNet is another possibility for private unemployment insurance, depending on where one lives. Presently available in 10 states, SafetyNet provides their policyholders with a one-time lump sum payment between $750 and $9,000, depending on the coverage option selected at the time of inception. The monthly cost of SafetyNet varies by state and protection level, and is far less than the traditional policy that was offered by IncomeAssure, as the payment is correspondingly reduced as well. However, as a lump sum option, the ability to quickly access needed cash is a boon to those who may find themselves in need of it.

As with most insurance plans, there are certain exclusions to the SafetyNet policy. These include:
• A pending job loss that the client was informed of prior to purchasing the coverage, or job loss due to acts of war, criminal misconduct, or nuclear/natural disasters
• Job loss due to quitting or retirement, or are termination for cause, including for poor job performance and improper workplace behavior
• Any job loss within the first 90 days of coverage
• Any disability that starts within the first 6 months of coverage if caused by a pre-existing condition treated in the 6 months prior to coverage
• Any disability that occurs in the first 90 days of coverage, or any disability due to normal pregnancy, alcohol or drug use, or elective surgery
• Normal and routine downtimes and workforce reductions for seasonal and other jobs (like construction) or job loss because the task the employee was hired to do was completed or the time period covered by the employment agreement came to an end.

While no one would argue an insurer’s right to protect itself against issuing a policy to cover employment loss for those who sought to quit, retire, or get fired through poor choices on the job, some of these terms should be a caveat emptor for those who have medical conditions that may extend beyond FMLA coverage or whose workplaces are in areas prone to natural disasters, as neither of those conditions may be covered.

For those who are classified as independent contractors, however, the market for private unemployment insurance remains limited. In most states, independent contractors aren’t eligible for unemployment benefits, and neither IncomeAssure nor SafetyNet extended their protections to that segment of the workforce either.

For independent contractors, facing periods of unemployment is one of the hazards of the role. When such a period comes, the independent contractor should invest the time to review the conditions of the work that they did for their last employer to ensure that they were classified correctly as independent contractors, and weren’t mis-classified employees, who would be then eligible for state unemployment protections. (The IRS has simplified the independent contractor test to three broad factors with 11 conditions: behavioral control, financial control, and type of relationship).

Although the marketplace for private unemployment insurance appears to be limited, it’s worth it to ask your insurance professional of any options that may be available to you in your segment of the workforce as a part of your annual insurance review.