Most workers are required to pay unemployment insurance premiums to the state with each paycheck, but state-run unemployment insurance runs out in only a few weeks. Why don’t insurance companies offer supplements to this, like they do with Social Security? Would it be unprofitable? Easily defrauded? What’s the deal?
Employers, not employees, pay unemployment insurance premiums. The premiums aren’t deducted from the employees’ paychecks; the employer pays them based on total number of employees and overall compensation paid. (Self-employed workers or sole proprietors are obviously paying only for themselves, and perhaps there are special mandatory unemployment fund [union, not state-run] contributions required for those employed under a collective bargaining agreement.)
I’m not sure if additional UI has ever been tried by a private insurance company before. My guess is that if employees were able to buy a UI policy on their own, there would be scads of people who would abuse it - they’d work the least length of time possible in order to claim benefits and then want to have the UI kick in for as long as possible, and then work the least amount of time again, etc.
My guess would be “a whole can o’ worms.”
First off, it’s the employer, not the employee, who pays premiums to unemployment compensation. In fact, (at least in Missouri) employers who have more claims than their industry average have to pay higher premiums than their competitors.
But I digress. If an insurance company wanted to offer unemployment insurance, they would surely want to offer it only for workers who had been legitimately laid off (i.e., positions eliminated due to budget cuts.) Otherwise, how would they guard against someone who works a few weeks, tires of the job and either quits or gets himself fired?
The insurance company would then require the employer to state the reason the claimant was let go. If the employer says the claimant was an obnoxious jerk, the claimant sues the employer. If the employer says the job was eliminated, then hires someone to fill it (or, more likely, transfers someone from another department that is also facing cutbacks), the claimant also sues the employer.
Faced with those two alternatives, the employer isn’t going to cooperate with a private insurance company (as it must cooperate with the state by law). The insurance company isn’t going to be able to tell who was legitimately laid off vs. who was actually fired and the entire system collapses.
Where a private system would actually make sense is in boom-bust fields like manufacturing, where employees are laid off and called back as business needs change. However, since claims would be very high in those industries, I’m sure the actuaries have figured out that pretty much every policyholder would have a claim within X years – which means insuring those industries would be so expensive, no one would buy the policy.
Ignore the skeptics.
I think you’ve got a fine idea, there, and you should go into business with it. In fact, I’d like to be your first customer. I’ll make whatever payments you think is fair, unless and until I should find myself jobless, after which you will support me as long as I am jobless - have I got that right?
In a shameless, only marginally related hijack… Why can’t the unemployed (with prospects of future employment) buy disability insurance? My Torts professor browbeat our class up one side and down the other because no one had disability insurance to protect our presently rapidly accumulating debts from the possibility that we would never begin work and be able to pay them off. But then a couple of people went out and tried to buy it, and no insurance companies would talk to them. (The Torts professor was monumentally uninterested in this practical difficulty).
Like Napier, I also would like to bet you that I could sit on my butt all day.
OK, smartass, I didn’t think I would need to make this clarification:
The insurance would only pay if you were involuntarily discharged due to a general downsizing. I don’t see how this would be any more open to fraud than, for instance, auto insurance. (People wreck their cars on purpose in insurance fraud all the time, but it doesn’t seem to deter the insurance companies from continuing to sell policies.)
*Originally posted by City Gent *
[QUOTE The insurance would only pay if you were involuntarily discharged due to a general downsizing. I don’t see how this would be any more open to fraud than, for instance, auto insurance. (People wreck their cars on purpose in insurance fraud all the time, but it doesn’t seem to deter the insurance companies from continuing to sell policies.) **[/QUOTE]
Most insurance companies (with good reason) will only insure something that they can make a reasonably accurate actuarial “bet” on re the odds of a claim being made vs the policy income. The actuarial “odds” of fraudulent auto accident claims have a history and can be (and are) factored into the overall probability matrix for auto insurance. Betting on the success or failure of a business or portion of a business is a nigh impossible thing to calculate with any true certainty. Banks make these bets all the time in the form of loans but at least they have some degree of recourse in the form of corporate assets (if any) and personal assets if the loans are personally guaranteed. Insurance companies have no such recourse.
Unemployment insurance. Yes, employer pays. Yes (at least in MI and I would be astonished if it weren’t true in other states), the rates go up if you have claims.
the way it works: (In MI) the employer pays an individually fixed rate per employee (but only on the first $9500 of income - so if you make more than that per year, we’re not adding additional funds on you). Around here, the rate is in the neighborhood of 3 - 8%.
Upon separation from work, the former employee makes a claim. The UI office sends a form to the employer asking for the reason for seperation. If the reason for seperation is quit (voluntary) or Fired (for cause, more on that), generally, the claim for UI is denied /delayed (depending on the individual laws in your area).
If the reason for seperation is plant shut down, down sizing, lay off, building caught on fire etc, the claim is processed.
In the case of “fired”, there is more investigation done. was the fire for ‘cause’ (so, for example, if you’re ‘let go’ without a reason, you can often find out the reason this way ). My employer fired a person once for insubordination, he filed for UI, fought the claim, and the company was responsible for the claim (they determined it was a 'hostile work environment - of course, this was about 15 years ago). Anyhow.
Currently, in the State of MI, in order to continue to collect UI, you must register with the state’s job seeking program and have your resume on the internet, and update it every so often.
In addition, if there is a major lay off in a company (a plant shut down or other major downsizing), there is a program (state sponsored) called “Rapid Response” where a team is sent in to the affected plant before the layoffs and work with the to-be-layed-off employees helping them find jobs before the lay off. (My sister in law also works in that ‘industry’ - it’s called out placement -interesting that we have such a named industry when the economy is supposedly in excellent health?)
At any rate, the enormity of the structure involved for this should give you an idea of why it’s a state sponsored activity, rather than private industry.
Especially when you also consider that this goes on even when the economy is not doing well (I remember being layed off in the mid 80’s, I was able to recieve benefits for nearly a year).
However, it is also possible for you to apply for ‘insurance’ to pay specific bills such as mortgage and credit card bills should you be layed off. It’s, naturally, very expensive (the amounts that I saw for the Credit card insurance was an additional couple of percents of your current balance- which frankly, if you could afford the payments, you probably don’t need it). But I digress.
Many credit card companies offer “unemployment insurance”: for a rather high premium, the insurer will pay your minimum payment for six months in the event you lose your job. These are generally ripoffs, but they do exist.
Not all states restrict unemployment benefit premiums to the employer; some have the employee make a small contribution as well. In California, for instance, the SUI/SDI component paid by the employee (in the 1990’s, when I lived there) was 1% of gross wages, which in a fit of uncharacteristic truthfullness was listed on your wage form as a tax. A portion of the benefit was paid into the Unemployment Insurance fund, the rest went for disability benefits paid by the state. It was capped at around $32,000 of wages ($320 of payments), with annual adjustments to the cap.
As for the subject of private insurance, the statements previously posted about companies not being able to properly predict premiums are nonsense; insurance companies offer insurance on all sorts of possibilities with far less actuarial certainty than that available on the possibility of individual workers becoming unemployed. But let’s look at what the original poster was asking for. The OP wonders why there is no widespread commercial supplemental insurance for unemployment. That is, the OP is asking about insurance that would either pay additional benefits above the capped weekly limit most states have, or which would pay benefits after the time limit most states have expires.
Involuntary unemployment duration is difficult to measure. States usually cap benefits in part on the basis that, after some time limit, the continued unemployment has a voluntary quality; in California the cap was something like a year (I’m too lazy to go look up the Labor Code sections I used to know off the top of my head), in part on the theory that, after a year of looking for a job, if you still weren’t working, you just didn’t WANT to work. Obviously this isn’t totally the case; people may live in impacted areas, or had high wages before and have to accept significantly reduced wages to return to work, etc. Most states go through a lot of silly rigamarole to ensure that people being paid unemployment benefits are actually looking for a job. So, in sum, there can be difficulty measuring exactly when the condition for which the insurance benefits are being paid has ended. Given that states already have some time limit, it seems natural that a private insurer would be reluctant to offer benefits beyond that time limit subject to a mostly subjective determination that the claimant is not working because he/she CAN’T find work. Contrast disability benefits, where the insurer can at least have the claimant examined and obtain ‘expert’ opinion as to whether or not the claimant is able to work; there are oodles of supplemental disability insurance policies available.
As to the other part of the equation, probably there are too few people who fall into the category of needing added insurance (more dollars per week) than the state caps. Those who earn that much usually are able to return to work relatively quickly, and are more likely to have something set aside to deal with the possibility of layoff, though one does wonder about all these twenty-something dot-com employees.
And, finally, I suspect strongly that, if you searched hard enough, you would find that supplemental unemployment insurance IS available. For most anything that has demand, there is supply somewhere.
I suppose I should have been more clear in my point. You are correct that irrespective of the ability to make a finely parsed actuarial calculation you can, if you are willing to pay the premium demanded, probably insure anything, from a racehorse’s legs to the continued good health of your Stradivarius, to the chance that an individual 18 year old is mature enough to handle a 1000cc Ninja motorcycle. However, in order for insurance to be a successful mass market product it must be to be priced attractively for the consumer to make the wager that the insurance is an affordable expense given the perceived risk/reward ratio. If the probabilities of payout for the insurance company are highly uncertain, even on a macro level (combined with the time of payout issues for individual cases you also addressed), that insurance is unlikely to be priced at a point where it is attractive to the mass market and is unlikely to be a useful line for an insurance company to carry if they cater to the mass market.
I am sure, as you said, that this insurance exists. I would venture a guess it is;
1: Quite expensive
2: Mainly offered to older, upper level executive employees and probably has fairly strict time payout caps.
In sum, the actuarial constraints involved do matter, and combined with the administrative difficulties you mentioned in implementing payout of these policies, it’s not likely to be offered at a perceived affordable price by most people and thus is not likely to be something main line insurance companies are going to bother carrying for their average clients.