A financial planner has advice for anyone worried about layoffs: Don't overlook your insurance
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Courtesy Hanna Horvath
- It can be good for your peace of mind to get an individual long-term disability policy.
- Life insurance policies are affordable, especially if you lock in a premium when you're younger.
- If you lose your job, it may be tempting to let your health insurance lapse — but it's worth having.
Layoffs have hit several sectors in 2024, and many workers are more worried about losing their jobs as the previously hot job market continues to slow.
As a financial planner, I always recommend getting your financial ducks in a row so you're not caught in the lurch during layoffs. And one thing I've noticed is that insurance considerations often get lost in the shuffle, especially during unexpected layoffs.
It's understandable. Losing your job is incredibly stressful, and your first focus is typically trying to make ends meet. But many people don't realize just how much of their insurance coverage is tied to their employment. Disability, life, health, dental, vision — all can evaporate quickly after a pink slip.
That's why it's worth taking some time to reevaluate your coverage now and explore individual policies before you actually need them. Here are some types of insurance you should review.
1. Disability insurance
If I had to pick one of the most important coverages to consider in the event of job loss, disability insurance would be at the top of the list. Yet it's also among the least understood (and purchased!) policies, especially by younger workers.
Disability insurance replaces your income if you're unable to work due to illness or injury. In other words, it's a financial safety net if something prevents you from earning a paycheck. Considering that more than one in four of today's 20-year-olds become disabled before reaching retirement age, it's not a minor risk.
Many employers offer group short-term disability and long-term disability options. Short-term disability usually kicks in first and covers a percentage of your salary for a shorter period, typically under 26 weeks. Long-term disability policies take over after that, typically replacing 50% to 60% of salary for a set period of time or until retirement age.
However, these policies disappear if you leave the company. They're also taxable. If you rely solely on employer-sponsored disability and get laid off, you could find yourself without coverage right when you may need it most.
I recommend at least looking into buying an individual long-term disability policy. It costs, on average, 1% to 2% of your annual salary — and as long as you pay the premium, it will stick with you no matter what job you have. Yes, premiums are higher than workplace plans. But the peace of mind is often worth it, especially if you have a high-income career or someone financially relying on you.
2. Life insurance
Another common employer-provided insurance is group life insurance, which pays out a death benefit if you die while employed. This is often worth one to two times your annual salary.
Similar to disability insurance, though, this group life insurance is contingent on your working at that company. If you leave the company, that extra safety net for your family goes "poof."
That's why I highly recommend considering an individual life insurance policy. Some policies can be relatively affordable — the average cost of a policy ranges from $40 to $55 a month.
Most people only need to get term life insurance, which provides a fixed death benefit for a set number of years, say a 20- or 30-year term. It's quite affordable, especially if you lock in your premiums while you're younger.
Buying an individual policy gives you control over your financial future. You won't have to worry about being uninsured if you suddenly lose workplace coverage. And if you leave on your own terms down the road, this policy comes with you.
3. Health insurance
Healthcare is the type of insurance most people associate with employment — and for good reason. Employer-sponsored health plans are often more affordable and comprehensive than individual market options. However, they also come with strict rules around enrollment — if you lose your job, you often lose your coverage.
If you're laid off, you'll likely be offered COBRA continuation coverage. This allows you to stay on your former employer's health plan for up to 18 months by paying the full monthly premium yourself (plus a small admin fee). It's pricey, but it lets you keep your existing doctors and benefits.
Losing job-based coverage qualifies you for a special enrollment period on the federal marketplace. You have 60 days before or after your final day of work to sign up for a new plan. These can be pricey, too, but you may qualify for subsidies based on your income.
Short-term health insurance is also available. It is generally much cheaper than COBRA or ACA plans but provides leaner benefits. These plans also don't cover pre-existing conditions and may have limits on prescriptions, maternity, and mental healthcare. But if you're healthy and need a temporary budget option, they're worth considering.
My biggest piece of advice? Don't delay your decision and let coverage lapse. It's tempting to put off insurance while prioritizing more immediate needs. But going uncovered is a massive financial risk, even for a brief period between jobs. Medical debt remains a leading cause of bankruptcy. That's why it's important to make a plan now.
Review all your insurance options
Disability, life, and health are three of the most common types of insurance to review if you've been laid off, but they aren't the only ones. Dental, vision, critical illness, accident — these supplemental policies also are commonly tied to employment.
If you have any wellness concerns on the horizon — major dental work or vision correction — address those while your workplace benefits are still active. Then, decide if you need to purchase individual coverage as well.
It can be stressful to think about the possibility of losing your job (and your income) but it's important to be prepared and think ahead.
This article was originally published in April 2024.