Surviving Unemployment

Losing your job may be the toughest financial blow you'll ever have to take, yet people do survive unemployment; in fact, they often emerge on firmer financial footing (because they've quickly learned to budget and cut back) and with greater confidence in their abilities. This section shows you how to move from desperation to success.

Sorting Out Severance Packages and Unemployment Insurance
Your first step should be to assess how much money you may still have coming in — usually from two sources: Severance pay (a lump-sump check from your employer) and unemployment insurance.

Many companies don't offer severance packages, so its' certainly not guaranteed. If the company is laying off employees because it is having financial difficulties, you probably wont' be offered any severance pay, but you may be offered a severance package that might include job-placement assistance, continued use of an office so that you still appear to be employed, and freelance opportunities to finish projects that you've been working on. This assistance is not common, however.

If you are offered severance pay, the amount will most likely be based on how long you've worked for the company: A months' pay for every two years worked, for example. If you're offered this pay — six months' worth of income, say — immediately put it away in a safe, interest-bearing account so that it will last you six months (or, perhaps, even longer).

If you're not offered any severance, or if the severance pay is so paltry that it runs out before you've even had your resume printed, you're not alone. Sadly, few companies offer this assistance — those that do are usually companies that have recently merged (and, therefore, have a lot of cash) and have laid off a small part of their staff.

If you were fired from your job because of misconduct, unemployment insurance and COBRA-defined coverage will probably not be available to you. These benefits are meant to assist employees who lose their jobs through no fault of their own.
You're far more likely to receive unemployment benefits, however. The moment you hear you've been laid off, call your states' unemployment-insurance agency. While you may have to visit the unemployment office, some states allow you to file a claim by phone or online.

The amount of your unemployment insurance and the length of time you'll receive it is based on how long you've been employed, the state you live in, and the general economic condition in your area. (In times of severe economic downturn, unemployment benefits are often extended for many more weeks than in relatively healthy economic periods.) Your state's unemployment office will know how many weeks you're eligible for and whether you have any chance of having those benefits extended.

As soon as you find another job, your unemployment benefits will stop. Some states, however, have a self-employment assistance plan that encourages you to start your own business. You receive the same benefits as you would if you were looking for work, but instead of sending out resumes and going on interviews, you're spending your time getting your business started. Ask your state whether a self-employment assistance program is available to you.

Locking In Your COBRA-Defined Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 was designed to help employees who leave their jobs and are, as a result, without medical insurance coverage. If your former employer had 20 or more employees, COBRA allows you to continue medical insurance coverage for up to 18 months after leaving your company.

The fine print? Well, it's a doozy. You have to pay the entire cost of your insurance — the portion you paid before (it was probably deducted from your salary) and the portion your employer paid on your behalf, which may have run several hundred dollars per month. (Your former employer is also allowed to charge you a 2 percent administration fee.) The coverage you receive — including deductibles and limits on coverage — should be identical to the coverage you had as an employee.

When you're laid off, you should receive information about continuing your medical coverage under COBRA. If you don't receive it, ask for it! You usually have 60 days to elect to continue your coverage (and when you sign up, the coverage is retroactive to your last day on the job) and pay the first payment. If you fail to make the payments, which are usually due monthly, the coverage will be terminated.

Before deciding whether to accept COBRA coverage, call around or search on the Internet for short-term health-care coverage. If you're willing to go with a high-deductible plan (which means that you don't get any benefits until your medical expenses total a ridiculous amount, but you're covered up to a few million dollars if a catastrophe occurs), you may be able to pay hundreds less per month for insurance and still have coverage if a catastrophe occurs.

It's no small irony that when you can least afford to pay the entire portion of your medical insurance costs, you have to, in order to continue your coverage. However, if you're tempted to just go without insurance, don't! Doing so may turn a bad financial situation into a catastrophic one.
Many conditions, including pre-existing ones and pregnancy, aren't covered (or aren't covered until a year after the policy begins), and a few of these policies can't be renewed after they expire (usually in six to nine months).

COBRA's biggest benefit could be that even though it expires 18 months after you sign on, if you still haven't found work, you're eligible for insurance policies that aren't allowed to exclude pre-existing conditions.


Seeing to Your Other Insurance Need
If you're able to lock in COBRA insurance for the next 18 months, you have one major insurance need taken care of, even if it is frighteningly expensive. But you want to think about your other insurance coverage as well, especially insurance that may have been covered by your employer and insurance that you may be tempted to let lapse while you're unemployed.

Employer-Sponsored Insurance

Your employer may have paid for life, disability, dental, and vision insurance, in addition to medical coverage. Of these, life insurance is the one that's most important to secure while you're unemployed.

Some people think of life insurance as a way to leave great wealth to their children or spouse upon their death, but for most people, life insurance is simply a way to help your family pay for funeral costs and get through a year or so without your income.

Many people, therefore, buy enough coverage to pay funeral expenses, pay off the mortgage, and pay for one or two months of income or unemployment benefits. Funeral expenses vary by area — call your local funeral home for an estimate.

You can find out your mortgage balance by calling your mortgage lender and asking for the payoff amount. Use WORKSHEET 12-1 to see how large your life-insurance policy should be.

WORKSHEET 12-1

Amount of Life Insurance Needed

Funeral expenses:

$

Mortgage payoff:

$

Monthly income or unemployment benefits:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Insurance You've Been Paying For

Your employer has probably had nothing to do with your homeowner's or apartment insurance and car insurance. When you're unemployed, you want to keep those insurance policies intact, although this is a good time to shop around for a better price and, if necessary, higher deductibles.

You may also have had a retirement plan at your company. For now, don't feel that you need to do anything with this plan, unless you think your company might be in danger of declaring bankruptcy. Otherwise, let it sit until you've had a chance to figure out your next move.
Most states won't allow you to let your auto insurance lapse (they'll eventually take away your license plates), and most lenders won't allow you to let your homeowner's insurance lapse (they'll cancel the mortgage and force you to sell your house).

Although this may seem intrusive on their part, consider what would happen if you had a fire in your house and didn't carry insurance. The mortgage company wouldn't have a house to sell in order to recoup their loan, so they would make you pay that loan in full immediately.

Don't let unemployment go from bad to worse by not maintaining some insurance coverage for your house and car.

Paring Your Expenses Down to the Bone

Now that you have a sense of what your income might be for the next few weeks and have discovered the cost of paying for your insurance policies, you can create a bare-bones budget that you'll live on until you find your next job.

Your next step is to eliminate every single unnecessary expense so that, even with the increase in medical insurance payments (and, potentially, other insurance premiums, too), you can make your unemployment insurance (plus any savings you may have) last as long as possible.

This is your time to experience living like a monk. Unless you can show directly how spending money will get you another job, put away your credit cards and begin a period of absolutely no discretionary spending.