February 20, 2009

Is job loss insurance worth paying for?

With the economy the way it is, things like unemployment are frequent topics. If you become unemployed through no fault of your own then you can qualify for government unemployment insurance. However unemployment insurance may not t pay a significant portion of many peoples previous paychecks. Apparently there are private forms of unemployment as well which function as a kind of insurance similar to disability insurance.

A private company that offers such insurance is PayCheck Guardian. I couldn't readily find other companies that offer such insurance, but there may be others out there. Looking at the Paycheck Guardian website they make it pretty easy to find their coverage rates and basic details.
The rates for their insurance are : $50 a month for $750 of coverage, $60 a month for $1000 coverage and $70 a month for $1500 coverage. The coverage lasts 4 months. You do have to work 4 months after signing up in order to be eligible. This stops people from hearing about a layoff next week and signing up for the insurance just because they know they'll be laid off shortly. I'm not sure if there are other requirements to qualify or anything so you'd have to dig deeper into the contract to see all the details.

Financially is this a good deal?

For their basic coverage, you're looking at paying $600 a year for $3,000 potential benefit. If we make a guesstimation that there is a 1 in 10 chance of being laid off within a year period. I don't have a good number for that and couldn't readily find statistics about the chance of becoming unemployed in a given time period. But I think 1 in 10 is an OK guess at least for ballpark assumption work. So if the rate of becoming unemployed is 10% then for every 10 people making $600 in annual payments the pay out rate is $3000. The insurance company is taking in roughly $6000 for every $3000 they pay out. Another way to look at it is that the insurance you're paying $600 for is really only worth about $300. The plans with higher coverage work out in similar fashion.

Financially speaking I don't think this kind of insurance is a good buy.

Will they pay claims?

I'd also wonder how easy it is to actually get a payout from this company. I tried finding reviews about them on the web and I couldn't find much of anything. I was able to find that the company operates as Producers Financial Network and they have a BBB rating of A+ with no negative customer complaints in 3 years. They also previously operated as Mortgage Safety Plan. I looked and can't find reviews of that company either. I don't find anything bad about this company. But its hard to say, there isn't much of any review type materials. I would think the BBB rating is a good sign though. I don't see any evidence to think they won't pay claims but its not clear if they've been around enough to be tested much.

What should you do instead then?

A good emergency fund should be your self insurance against unemployment. In today's economy I'd try to build up 6-12 months of living expenses. That may be easier said than done but you have to start somewhere. Diverting $50-$70 a month of your income into an insurance plan will only make it harder to get that emergency fund built.

Other info:
Your Money : Job Loss Insurance
Job Loss Insurance Gains Attention as Recession Grows
Should You Buy Job Loss Mortgage Insurance?

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