Lost Job Insurance: Is It Worth It?


It is the stuff of nightmares: you lose your job, default on loan repayments and a sudden illness leaves you in the hospital with no health insurance to cover your bills. A string of unfortunate events can leave even the most well-prepared and cautious people facing serious financial difficulties, or even life on the street.

There are various insurance companies that offer to pay you a percentage of your monthly salary when you lose your job. While there are other policies to cover missed payments on cars and houses, these salary replacement policies have left insurance experts divided in their opinion. Read on to find more information about lost job insurance.

1. Percentage

Some companies promise to pay you a percentage of your salary if you qualify for state unemployment insurance. In return for a monthly premium of approximately 1% of your gross pay, the insurer will add a contribution to the state unemployment insurance so that you end up receiving around 50% of your monthly check.

Experts believe that these policies do not make much sense for the average worker. You might want to take out a policy if you work in a high-risk job, but you will likely find that you do not qualify for a policy. And don’t count on taking out a policy if you hear of layoffs in your sector; the policies have to be active for a number of months before you are able to make a claim.

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2. Cost

Lost job insurances are not a cheap option. Someone on a salary of $100,000 per year would end up paying around $150 per month in salary insurance premiums. It turns out there is a reason why lost job insurance has not taken off, and it is as much to do with the insurance companies as high prices for consumers.

Large insurance companies quickly worked out that those taking out lost job insurance policies were more likely to need them than say auto insurance policy holders. This makes lost job insurance an unprofitable market for insurers.

3. Viable alternative

Instead of paying out for an insurance policy that is unlikely to cover your costs, experts recommend putting some money away each month into an emergency fund. As long as you have around 6 months salary put away you should be able to find a new job without worrying about your immediate financial security.

Another good option if you already have a mortgage is to look into refinancing your home. The lower repayments will help you keep your head above the water and free up some cash for everyday expenses.

4. Budget

Perhaps most important if you have a feeling you might lose your job is to keep a strict budget. By writing down every outgoing, you will be surprised at how many unnecessary expenses you can cut in order to reduce your spending.

That $4 Starbucks might taste nice, but you could save $112 per month by brewing coffee at home. You can also make your own lunches instead of spending your cash on the food that is going to ruin your weight loss goals or even health.

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In conclusion, you are better of taking control of your own financial destiny rather than relying on an insurance company to replace your salary for you. It is time to draw up a budget and start putting some money away each month. If some of you have already got the lost job insurances, could you say that it is really worth your money?