Raise your hand if you’ve ever heard someone say, “I got laid off from my job, but at least I’m collecting unemployment.” Now, raise your hand if, like me, you thought “unemployment” was like Bigfoot- something people claim to have seen in the wild but you’re pretty sure they just had one too many s’mores.
Most of us have a vague understanding of what unemployment insurance is. If you do have an in-depth understanding, it’s probably because you’ve used it at some point. For the rest of us, unemployment insurance is like an urban legend- we know a friend of a friend of a friend who’s gotten it...but not much else.
But unlike Bigfoot, unemployment insurance is very real. And it’s going to play a big role in your life if you ever lose your job. It’s one of those boring adulting things you need to know about because there might be a time when you really need it.
So, in the spirit of adulting, here’s a quick breakdown of everything you need to know about unemployment insurance.
What is unemployment insurance?
Unemployment insurance is a federal and state insurance system for people who lose their jobs. It temporarily replaces some of the wages people lose while they look for work. The idea is that while you’re unemployed you can still pay for part of your basic living expenses, which in turn keeps you healthy enough to find a new job.
How much you receive and for how long depends on your state and your past earnings. Most state’s unemployment benefits last up to 26 weeks and the maximum weekly payout ranges from $300-$600 per week.
Unemployment insurance is a gift that your employer gives you via mandatory payroll taxes. Every time your employer pays you, they are required to pay a series of taxes. One of these taxes goes into your state’s unemployment insurance program. The good news is that, only in rare cases, are employees expected to pay into public unemployment insurance.
There’s also private unemployment insurance which can be a supplement or alternative for public unemployment insurance. For many people, $600 a week isn’t going to cut it when it comes to basic living expenses so they invest in private unemployment insurance to make sure they can still pay their bills while they look for a new job.
What’s the history of unemployment insurance?
Okay, you probably care more about how much money you could get from unemployment insurance, but it’s still important to understand how and why this program exists.
Unemployment insurance is pretty old school. The first unemployment insurance plans were established by trade unions in Switzerland in 1789. In the United States, the first voluntary unemployment plans go back as early as 1831 and were created by trade unions. In 1932, in Wisconsin, the first public unemployment insurance plan was created as a response to the Great Depression and staggering unemployment rates.
A few years later, in 1935, the first federal unemployment insurance program was created as part of the Social Security Act and by 1937 every state in the Union had their own unemployment insurance program.
So, yeah, people have been adulting with unemployment insurance for a long time.
What’s the benefit of unemployment insurance?
The most obvious benefit of unemployment insurance is to keep unemployed folks on their feet while they look for a job. But, it’s there’s more to unemployment insurance than just supporting the unemployed. Unemployment insurance is also used to stimulate the economy during tough financial times.
For example, if you’re unemployed and don’t have money to buy groceries, then the local store you always shop at is also losing money- your money. If everyone in your neighborhood is unemployed and nobody can afford groceries, then the store takes a financial hit. Since the store isn’t making as much money, it will need to lay off workers and the unemployment cycle continues.
Unemployment insurance is as much for your benefit as it for stabilizing the economy.
Who can collect unemployment insurance?
The first thing you should know about unemployment insurance is that, in most cases, it’s only for people who are employees...which is a bummer for self-employed folks.
For employees, every state determines the eligibility for unemployment insurance differently. But one thing is constant: to qualify you must have lost your job due to no fault of your own.
In other words, you can’t quit your job because your boss likes Stars Wars better than Star Trek and collect unemployment. You also can’t be fired for yelling at a customer in Klingon and be eligible for unemployment.
But, if you were laid off or wrongfully terminated then you could be eligible for unemployment insurance.
Other factors that affect your eligibility are:
1) Earnings and length of time at your job: You must meet your state’s minimum requirement for the number of earnings your made or time that you’ve worked at your job.
2) Hours worked: You must also meet your state’s minimum requirements for the number of hours you worked per week.
Part-time worker? Many states have partial unemployment insurance for employees whose hours have been cut back through no fault of their own.
Will unemployment insurance be enough to cover all my expenses?
Probably not. On average, state unemployment insurance only covers about half of a person’s former wage. That means that if you can’t live off of half of what you’re earning now, you need a contingency plan.
Of course, you can save for unemployment and build a personal emergency fund, but if you don’t have a lot of disposable income, or are working towards other savings goals, that might not be realistic. Also, while most people spend more when their earnings increase, they don’t save more. That means that the emergency fund you started three years ago might not be enough to cover your current expenses.
Another option is a service like Otherhood, which provides income in the event of unemployment. And, unlike state unemployment, Otherhood works with you to ensure that your plan covers all of your expenses. That means you don’t need to worry about paying your mortgage, covering childcare costs, or even buying the basics like groceries. Your customized plan covers it all.
Adding a supplemental savings plan into the mix means that your finances never skip a beat. Plus, it gives you some breathing room to find a new job. On average, people remain unemployed for a little over nine weeks, but Otherhood builds a plan to cover you for as long as you want. Instead of taking the first thing that comes along because your financial ship is sinking, you have a life raft with plenty of provisions to get you where you need to go.