It’s time to create your own unemployment insurance

If you’re employed, you have the option to create your own unemployment insurance that’s even more flexible than what you get through work.

Some people don’t seem to understand what “getting unemployment” is all about.

Unemployment is a kind of insurance. It’s just like car insurance or health insurance or flood insurance.

But what’s different about unemployment insurance rather than, say, car insurance, is that who is responsible for paying the premiums is not who receives the benefits.

You don’t pay unemployment insurance, your employer does, through a tax called FUTA (Federal Unemployment Tax Act). It’s a federal program that funnels money from employers to states, which are in charge of unemployment programs.

How cool: insurance that you get without having to pay for it.

Everyone should avail themselves to unemployment insurance if they qualify. There is no shame in it, or at least there shouldn’t be. It’s not a moral failing if you’ve been laid off.

I talked last time about the catastrophic wage cliff that’s befallen all of those people on unemployment in the U.S.. These folks are now getting an approximately 60% unemployment wage cut due to the inability of our government to recognize that the pandemic didn’t end just because we wanted it to.

Now, you may be fortunate, and may not be part of the millions of people laid off.

If so, congrats. May you continue to be so fortunate.

And in the meantime, it might be a great time to start formulating your own unemployment insurance plan.

The plan

While you’re employed, I suggest that you start paying your own version of the unemployment tax. To yourself.

This is a certain amount of money that you pay into an account (a bucket, perhaps), each month, to be paid out upon your unexpected termination.

The benefits

Unlike the unemployment that you may get with your job, this is one that you pay into yourself, which is less exciting, of course, but there are many benefits:

  • No limits. States usually restrict unemployment to 26 weeks of wages. You have no such imposed limit. You are limited only by how much you have saved.
  • No work search requirements. No restrictions on how often you apply for jobs or where you are able to travel to. You control the payouts.
  • No delays. You won’t have a “waiting week” or have to wait on hold on the phone for hours to apply for your benefits. You can withdraw however much you want whenever you want.

The drawbacks

Like I said, this is insurance that you pay yourself, so it’s not free, but aside from that, there aren’t much in the way of drawbacks.

Does this sound familiar?

If you’re saying to yourself, “hey, this sounds an awful lot like an emergency fund” then congratulations, you got the joke.

The difference is that we’re all now hopefully seeing firsthand how crucial an emergency fund is to your plan. No one expects to lose their job, and certainly no one could have predicted mass layoffs on the scale that we’ve seen.

But then again, no ever could have expected to get sideswiped by that SUV either. That’s why it’s called “insurance”. It protects you from the unexpected.

If you didn’t know that your financial picture can change on a dime before, you now know that.

So if you’re fortunate enough to have income right now, I would suggest starting to pay yourself some premiums on your newly designed unemployment insurance.

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