Sounds good for tough times, but good luck finding it
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August 16, 2009
The latest figures from the Department of Labor show that 247,000 more jobs disappeared last month. And right about now, many of the people who had those jobs probably wish they had something more coming to them than some severance pay and a small check from the state unemployment department.
I'm talking about private unemployment insurance. The problem is, if they had wanted to buy themselves that insurance a few months ago -- in the same way they can buy life or disability coverage -- it would have been nearly impossible to find at any price.
Sure, Hyundai will let you return your car if you lose your job. And companies in a host of other industries are offering add-on coverage that can help you keep paying your bill if you end up unemployed. (I've noted several options, including an intriguing new one in student loans, below.)
But paycheck replacement coverage -- a product that seems perfect for this economic moment -- is scarce, if it exists at all.
But it is possible to cobble together coverage for most of your major monthly bills. Here are some examples:
Mortgage: The nonprofit group Rainy Day Foundation allows companies like home builders that partner with it to cover up to $1,800 in borrowers' monthly payments for up to six months in the first24 months of the loan.
If your builder does not offer this, ask why.
Rent: Some large property owners will now let you break your lease if you lose your job, without owing rent for the rest of the year.
Student Loan: A new company, BridgeSpan Financial, will introduce a product called SafeStart next week. In exchange for a one-time payment of $40 to $70 for every $1,000 you borrow, SafeStart will offer a five-year interest-free loan during the five years after you finish your degree. You can use this loan to make student loan payments if you experience economic hardship. Coverage will be available only for federal student loans, though BridgeSpan hopes to cover other loans eventually.
Car: Hyundai continues to allow car buyers who take out loans when buying its cars to return the cars within a year if they lose their jobs, though there are some restrictions.
For any of these programs, you should ask: Is there a vesting period before I can collect? What about a separate waiting period after I become unemployed (as there was with PayCheck Guardian)? Can I keep the coverage forever, or only for a year or two? What sort of proof do you need of my unemployment? Am I ineligible if I am self-employed? Is it free, or must I pay a premium?
In many cases it will be free, since the property owner or car manufacturer will shoulder any risk or pay a third party to do so.
For true paycheck replacement insurance to succeed, however, customers would probably have to pay for it.
"The attention that the economic crisis has received probably raises the interest level and could raise the demand" for a product like this, Schmitz of Milliman said. "After a hurricane, people understand the value of insurance all the better."
That's for sure. But until insurance companies or others are willing to let you pay for an umbrella that shields you from the violent storms in the job market, you are stuck with insuring yourself with a plain old savings account.
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