
Finally, Private Unemployment Insurance. But Will Anyone Buy It? - hvo
http://www.nytimes.com/2016/05/28/your-money/finally-private-unemployment-insurance-but-will-anyone-buy-it.html?_r=0
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csense
Assuming insurance companies are profitable, insurance is a -EV bet for the
consumer. The only reason to ever buy insurance is if the potential loss would
be ruinously large. Gaps in unemployment simply don't generate that kind of
huge loss the way a house fire, extended illness or million-dollar lawsuit
would.

According to numbers earlier in the article, this pays out $536.50 * 24, about
6.7 weeks of pretax wages or 12.9% of your annual income.

If you put 10% of your income into an emergency fund, you can build it to the
level of the payout from this insurance in a little over a year.

~~~
pdq
I was about to post but saw yours, so I'll reply with basically the same
position.

\----

This will be a contrarian opinion, but personal insurance, in general is a
ripoff.

You are taking a monthly bet (ie an insurance policy) against another party
that an event will occur. The other party must administer the insurance and
also make a profit, so the overall expected return is negative. The only smart
reason to get these types of insurance is if you know you can make a claim in
the short term (in other words you have insider information that you will be
laid off soon).

The smarter thing to do is save and build up your own "rainy day" fund, where
once you have funded it properly, you no longer have to pay into it.

~~~
zanny
Insurance only makes sense for events so unlikely to occur but so catastrophic
if they do that any rainy day fund will not be sufficient - where an insurance
company _must_ , by nature of the costs, use the income from multiple people
to cover the extremely rare instance of a claim.

As has been said, that is home and some health insurances are for. _Most_
people will never live in a house that is destroyed that prompts a home
insurance payout, and if you _are_ someone who has their home destroyed, you
will get back way more than you would put in in a lifetime because the average
likelihood of it happening is so low. But not having the insurance would wipe
out your wealth - you lose the house and writeoff the loss and have nothing
left after the fact, and at best you spend an entire rainy day fund with a
mortgage on the land to rebuild, and even then you are doing significantly
more impactful damage than any rainy day fund could account for.

Same with catastrophic health insurance. _Most_ people do not get debilitating
diseases that don't kill you but will require lifelong care like Parkinson's
or Dementia, but if you _do_ get one of them you would be destroyed trying to
pay the constant upkeep costs.

And strangely? enough, both are often best handled by the state. In some
countries property owners are not insured privately but by the township to
avoid problems where disasters wipe out multiple homes and some people do not
have such a rainy day fund to afford to rebuild. And first world countries
provide single payer healthcare to make up for the rare catastrophic
conditions. If you want to have these costs borne out across the entire
population to offset the individual costs when they happen to _you_ , having
them be society wide is often the least expensive option.

~~~
phonon
> Most people will never live in a house that is destroyed that prompts a home
> insurance payout, and if you are someone who has their home destroyed, you
> will get back way more than you would put in in a lifetime because the
> average likelihood of it happening is so low. But not having the insurance
> would wipe out your wealth - you lose the house and writeoff the loss and
> have nothing left after the fact, and at best you spend an entire rainy day
> fund with a mortgage on the land to rebuild, and even then you are doing
> significantly more impactful damage than any rainy day fund could account
> for.

Homeowners insurance has broadened considerably from simple catastrophic fire
coverage. Most claims are relatively small, and can involve things like pet
bites, stolen property, guests being injured, wind damage, etc.

~~~
zanny
You _can_ insure for almost everything, but the simple things you insure for
_with_ homeowners insurance are more food for the insurance racket than
anything, because all those incidental costs are, like the superposter said,
better covered with rainy day funds because you _will_ experience _several_ in
your lifetime. In that case, better to manage your own money than give it to
someone else just to give back to you after taking a cut. You would never have
day to day homeowners insurance and _not_ get catastrophic coverage, but you
would certainly (and probably should, unless all insurance providers available
to you are racketeering on the small stuff for profit) consider the reverse.

~~~
phonon
Except, believe it or not, that is what people want and expect now from a
homeowners policy.

Simple Fire (HO-0) or slightly broader coverage (HO-1) essentially don't exist
anymore for individual homeowners. HO-2 (Where the company says "We insure you
for the following (long list) of things).") is also somewhat unusual now.
People don't buy them unless they are very price sensitive. The most common
type sold is HO-3, where the the carrier says "We insure basically everything,
with the following exclusions (like earthquake and flood)."

(Actual policies are much more complex, but that's the basic idea.)

And in fact, you do get the best of both worlds, because any carrier allows
you to choose a high deductible, like $5,000 or more. So you can self insure
the small stuff, (which the carrier doesn't want to deal with anyway, because
of the overhead of settling a loss) and feel comfortable if say a pipe breaks
during the winter while you are on vacation and causes $20k of damage, you are
not going to have to come up with that money somehow.

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mdorazio
This is interesting, but it seems like it would appeal to a different
demographic than HN. If you're younger and have highly desired skills in the
market, the numbers just don't add up for this. However if you're older and
concerned that a layoff might leave you out of work for multiple months, it
_could_ make sense.

Just playing with some numbers, if you work in "Information" in California and
make $100k, you're looking at just over $100/month in payments according to
their calculator. Say you get laid off two years from now, you would have paid
$2,400 for the insurance. Payments don't kick in for two weeks, and only add
$511/week over what normal unemployment would give you, so you would have to
remain out of work for 7ish weeks to break even.

~~~
ddt_Osprey
Meanwhile, you'll be paying for 24 weeks of coverage. And, so, 24 times $511
means, the maximum payout is $12,264 in taxable income, so maybe $8,000 in net
cash.

So, at the 7 year mark (or maybe right now), just start questioning whether a
simple, ordinary savings account would have been the better idea.

And, oh yeah, you don't get 24 weeks coverage until you've paid for coverage
for 6 months. Otherwise, you just get back maybe $600 at best, and then The
End. So you'd better have six months living expenses (or a solid job), AND
$600 to pay into the policy, before even bothering, otherwise you're still
screwed.

~~~
phonon
> Meanwhile, you'll be paying for 24 weeks of coverage.

Actually, premium payments are waived while on claim.

~~~
ddt_Osprey
No, I just meant in general. Under the circumstances that you're fully
employed for 7 or 8 years, and never need to make a claim, the maximum payout
is always 24 weeks of unemployment supplements. Therefore, after 8 years, you
might have paid more than you'll ever get back, even with incremental raises
during that lengthier period of time.

~~~
phonon
You can lose your job more than once.

~~~
ddt_Osprey
Welly, welly, welly, welly, well.

~~~
phonon
I see your point.

------
wtbob
> Those who work in public administration would pay the least: $34.75.

That tells you everything you need to know about which jobs are relatively
unrelated to merit.

> But many people can’t or don’t save enough to add up to the $12,875 or so
> that IncomeAssure may pay out to a $100,000 earner in New York

I don't care who you are: you need to have more than 1½ months' salary saved
up. If you don't, your life is going to suck, badly, at some point.

Honestly, this seems like a product best used by folks in their first few
years of work. If you've been working longer than that, you sure better have
better savings.

~~~
fiatmoney
In your first few years of work, you should be structuring your life so that
major expenses like car & housing are minimized (you're not used to better,
and you likely don't have a family to drive around & frolic in green space) &
you can build up a cash cushion. It just seems like there is just no frontier
for which this makes sense, other than "person who knows their job is going
away at 6mo+1day".

------
Animats
This should be a fringe benefit with startups. After all, the odds are that
they will fail.

~~~
scarface74
That would be a great idea. Everyone is saying that you should have an
emergency fund - and I agree - but I would rather not have the gap in income
that would cause me to use my emergency fund.

------
sytelus
They should really offer this through employers directly (like medical
insurance). That can reduce the cost for insurance company as well as
employers to offer severances if something goes bad. The key here is events
like layoffs at many companies is rare enough that it might make sense to turn
this in to severance coverage as opposed to unemployment coverage.

------
fiatmoney
It's really odd that their examples are people in the 100K+ range, for whom
the benefits are absolutely minimal after you account for the 6 month initial
required period & the benefit cap. This is the demographic likely to have both
savings to draw on, access to loans (eg a HELoC like the author), family
support, ability to fight an eviction or foreclosure... Even in lower income
brackets, it's so unlikely to be worthwhile compared to simply saving for the
initial 6 months that I'm not surprised that "IncomeAssure has existed for
five years, [and] there are about 1,000 active policyholders".

“It has been disappointing that we haven’t been able to find a cost-effective
way to get the word out that this exists,” Mr. Sterling, SterlingRisk’s chief,
said.

And here we are; they found their cost-effective marketing campaign for their
crappy product. I hope the author got lunch paid for at least.

~~~
phonon
You should not be so cynical. The insurance kicks in to supplement state
benefits, for people who would otherwise max out on them (most states give at
most around $400/w). So it only makes sense for people at middle or higher
incomes.

The benefits are not "absolutely minimal". The premiums might be, say $800/y,
and the benefits $10,000 if you are unemployed 24 weeks. Is it a lotto ticket?
No. But for people afraid of job loss without that amount saved up, do you
have a better suggestion?

~~~
fiatmoney
Yes; take the premiums you would've paid for 6 months (effectively without
coverage during that time regardless), save them, and reduce your living
expenses to allow you to build up the cash cushion from there. If you're in
that income bracket you really should be able to structure your expenses so
you can save a decent amount, even in a high-cost city (there are minor
exceptions to this, for instance child support obligations, but moving to a
shittier apartment or not going out to eat for N months to build up savings is
a valid alternative to incurring an extra recurring expense like this if
you're living on the margin of insolvency anyway).

Unlike these benefits, depleting savings isn't taxable income, and again, in
that bracket you might even be able to wrangle in tax-advantaged savings (eg
saving in a Roth account that gives you extra option value, converting to a
Roth at your now-lower income bracket & withdrawing the principal, withdrawing
home equity, etc). Once you figure in the fact that it's paying out
effectively 1/4 of your income, after taxes, for 6 months max, minus the state
unemployment benefits, it really does look to be a minimal payoff.

~~~
phonon
> Yes; take the premiums you would've paid for 6 months (effectively without
> coverage during that time regardless), save them,

Well, that gets you about 5% of the way there.

> save them, and reduce your living expenses to allow you to build up the cash
> cushion from there. If you're in that income bracket you really should be
> able to structure your expenses so you can save a decent amount, even in a
> high-cost city (there are minor exceptions to this, for instance child
> support obligations, but moving to a shittier apartment or not going out to
> eat for N months to build up savings is a valid alternative to incurring an
> extra recurring expense like this if you're living on the margin of
> insolvency anyway).

Not so easy for many people.

> Unlike these benefits, depleting savings isn't taxable income, and again, in
> that bracket you might even be able to wrangle in tax-advantaged savings (eg
> saving in a Roth account that gives you extra option value, converting to a
> Roth at your now-lower income bracket & withdrawing the principal,
> withdrawing home equity, etc).

There can be tax benefits for this insurance product as well (See
PLR-112680-11 for example). There can be penalties for withdrawing savings
from tax-advantaged accounts.

> Once you figure in the fact that it's paying out effectively 1/4 of your
> income, after taxes, for 6 months max, minus the state unemployment
> benefits, it really does look to be a minimal payoff.

Your math is iffy. You double counted the State benefit. It's State benefits +
Insured benefits = 50% of your former salary for up to 24 weeks. In states
(like Florida) where State benefits don't last 24 weeks, the insured benefit
would be an initial supplemental benefit, and then a full 50% replacement.

So for say someone in NY previously making about $2,000/w, the state will pay
~$420/w and this insurance would pay around $580/w, for up to 24 weeks. Again,
not a bonanza, but still very helpful for people who don't have (or don't have
_enough_ ) significant savings they can easily access. If the benefits were
much higher, the premiums would be much higher as well (TANSTAAFL). It's a
trade-off to make an affordable product that is sufficiently useful.

~~~
fiatmoney
It's really difficult to reason about rigorously without the expense side of
the calculation as well to calculate the potential for self-insurance.

~~~
phonon
There is a premium calculator on the site. For some people this policy is
useful and necessary, for others, maybe not. You can lecture all you want
about how people should have a significant emergency fund always available,
but unfortunately, many people find that too difficult. So this is an
alternative.

------
SilasX
Wait, what? There has long been a kind of private UI: those credit cards that
defer interest if you lose your job, for example.

~~~
phonon
Not quite the same thing as getting a check in the mail, is it?

------
drivingmenuts
Why should we? The state seems to be handling that one pretty well.

Of course, now that it exists, I live in one of those states which will likely
make it mandatory to purchase, because someone, somewhere in the legislature
or one of their cronies, will make obscene amounts of money off of it.

------
gruez
The title makes or look like this was recently released, but or says right in
the article that the product has been around for 5 years.

------
sjg007
Or you know California could just up unemployment to actually cover your lost
wages for a few months. 60% is a joke.

~~~
phonon
Actually, the issue the insurance most directly addresses in that case is that
CA unemployment benefits max out at $450/w. So people making more, or much
more, than ~$50k year would have a very significant income shortfall, as a
percentage of income.

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wturner
"Let’s say you live in New York and earn $100,000 annually."

wtf ?

I didn't read the rest of the article after that statement.Too divorced from
reality.

How about you start with "Let's say you work at a part-time temp agency doing
manual labor for $8 an hour and your hours are restricted to 30 hours a
week.You are socially trapped at the moment and see no way out"

Then the article would be more realistic.

~~~
dajohnson89
Whatever the typical demographic is for an nyt reader, it's not a manual
worker making $8/hr.

~~~
wturner
Ok, you're right. Those people should not be considered. Only "normal people"
who make $100,000 a year should be.....and the down votes to this post agree!

The real answer to this absurd nonsense is that all this can be done via
algorithms to determine who is the biggest liability, which helps these
"insurance companies" to choose who to accept and not to accept. This benefits
the companies but defeats the purpose of insurance in the first place.

