What is Unemployment Insurance

In an uncertain job market, unemployment insurance is a simple way to safeguard a person’s income to help cushion their finances and cover their credit commitments in the event that they lose their job. It can be controversial – Payment Protection Insurance products (PPI) have come under fire in the UK for being mis-sold to a huge number of people for whom they were not appropriate.

In theory, receiving unemployment insurance payments alleviates the immediate financial stress on someone who has lost their job, and gives them breathing space to get to grips with the already stressful business of finding a new job. However, a recent study by Rutgers University has cast doubt on this, suggesting that people who receive unemployment insurance are more likely to take more than a year to find a job, according to a report from Fox Business.

Unemployment insurance comes in a number of guises in the UK. PPI has become a dirty word, so terms such as ASU cover (Accident, Sickness and Unemployment) have sprung up, and many insurance policies can be purchased which include cover in the event that the policy holder loses their job. People interested in buying unemployment insurance are advised to read the small print very carefully – insurers have been found to include a large number of restrictions on eligibility for payouts, with the self-employed and those aged over 65 having found themselves unable to claim.

In the US, unemployment insurance (UI) is better defined as a kind of social welfare benefit, which is availble to full-time workers who have lost their job through no direct fault of their own (ie, being laid off, rather than fired). Self-employed, temporary and part-time workers tend to be ineligible, and even full-time workers have to satisfy certain conditions, which can vary slightly from state to state but boil down to needing to have been working in a job for more than a year.

If you lose your job, and are eligible to receive unemployment insurance, then the exact amount of money you will receive will depend on your current earnings and the number of calendar quarters you have worked. It is estimated that Americans receiving unemployment benefit payments tend to receive an average of 36% of their previous average wage. This is generally sufficient to cover the most pressing financial commitments, but unlikely to be enough for the recipient to support themselves indefinitely without eating into savings.

Currently, many Americans receiving unemployment benefits can continue to receive them for up to 99 weeks, following the American Recovery and Reinvestment Act of 2009, although this can vary from state to state.

Unemployment insurance provides a cushion should the worst happen to your job, but it can not be depended upon as a long term or even a medium term solution. It gives people the breathing space to look for the next stage of their career, rather than forcing them to take the very first job that comes along, but in turbulent financial times, that is a lot easier said than done.