How financially prepared would you be if you suddenly lost your job or became disabled? Chances are, not very. As a recent Federal Reserve study noted, 31 percent of Americans are “struggling to get by” or “just getting by.” The Fed has also found that nearly half of U.S. households would struggle to pay a $400 emergency expense.
This paycheck-to-paycheck existence is exactly why I think a new, novel, inexpensive insurance product for the financial vulnerable from CUNA Mutual called SafetyNet could be so useful. Think of it as “peace of mind” insurance or even business interruption insurance where the business is you. Cash for the cash-strapped. An emergency fund for people unable to save for emergencies.
A Personalized Kind of Unemployment Insurance
Actually, it’s a one-year, supplemental unemployment and disability policy designed to pay off if you get laid off or can’t work for at least 30 days due to an illness or injury. You can use the cash to help you pay for anything you need — your rent, food, the electric bill, whatever. The cost: from $5 a month for a $1,500 lump-sum payout to $30 a month for a $9,000 benefit with a lifetime maximum payout of $24,000. The lack of insurance agents helps keep the premiums down.
To collect on a SafetyNet policy, a beneficiary just needs to send CUNA Mutual proof of the job loss or disability. “It’s as simple as a letter from your employer or your doctor,” says Rich Fischer, SafetyNet’s chief actuary. Compare that to the bureaucracy, rules and delays of applying for government unemployment insurance.
The cost: from $5 a month for a $1,500 lump-sum payout to $30 a month for a $9,000 benefit.
An article in Isthmus, an alternative weekly in Madison, Wis. (home to CUNA Mutual), gave a great example of how SafetyNet can come in handy. Last year, it noted, Steve Millen signed up for the $20-a-month version of the policy when he heard rumors that his company might be in danger. After the business closed in December, Millen filed a SafetyNet claim and received a $6,000 check in the mail — the equivalent of an extra four months of Wisconsin’s $1,500 unemployment benefits. (The size of unemployment checks varies by state; from $940 a month in Mississippi to about $3,000 a month in Massachusetts.)
An Insurance Policy From an ‘Innovation Lab’
SafetyNet was dreamed up in an “innovation lab” of CUNA Mutual Group, an 80-year-old company that mostly provides insurance policies for credit union members. I first heard about it when I met Mark Greene, director of innovation and product development for SafetyNet, while attending The Aspen Institute 2016 Economic Security Summit.
“It doesn’t look or feel like anything else in the market,” said Greene. He’s right.
About the closest thing is something like AFLAC’s short-term disability or hospital insurance policy that pays cash to help ease the financial stress of an illness or injury or hospital expenses not covered by major medical. But your employer needs to offer that kind of policy.
By contrast, anyone can buy a SafetyNet policy online, as long as their state permits it. And that’s the big catch, for now: Currently, only Wisconsin and Iowa let residents buy SafetyNet insurance.
Getting state approval requires CUNA Mutual jumping through all kinds of hoops. “We’re hoping to be in four states by the end of 2017 and in all 50 states in five to 10 years,” says Greene. South Carolina and some states in the Midwest may be next up.
When the Policy Won’t Pay
There are a few rules about when SafetyNet won’t pay, however.
You won’t receive benefits if you were told you’ll lose your job before you bought the policy or if you quit, retire or are fired. Nor if your job loss or disability occurs in the first 30 days of coverage or if your disability starts within the first six months of coverage and was caused by a condition you were treated for within six months before you bought the policy.
Other Policies That May Be Coming
The CUNA Mutual innovation team skunkworks may also come out with other intriguing policies for people hit with sudden financial shocks, Greene says.
“Divorce is a huge peril,” he notes. So there could be a SafetyNet policy paying benefits if your income takes a hit due to divorce.
Other possible policies in the offing: reimbursement for unforeseen car or home expenses. The auto policy might cost a family $35 a month for one car; $50 or $60 a month for two.
And Greene has said CUNA Mutual in the future may let people buy SafetyNet policies on behalf of others. I could see boomer parents buying them for their Millennial kids with Gig Economy jobs.
Help for Your Expenses and Your Health
Since the average middle-class family in the U.S. has only about three weeks of financial reserves, an insurance policy like SafetyNet’s could be a financial godsend. Better still, it might help their health.
A February 2017 Health Affairs article said a new study has found that receiving unemployment benefits significantly reduced the probability of reporting poor health in the year after a job loss by 4.7 percentage points.
“In the absence of benefits, some unemployed people may feel distressed or be unable to pay for health-promoting goods and services,” said authors Jonathan Cylus, of the London School of Economics and Political Science and the European Observatory on Health Systems and Policies, and Mauricio Avendano, of King’s College London and the Harvard T.H. Chan School of Public Health in Boston. “Alternatively, receiving unemployment benefits may help the unemployed cope with some of the stress associated with financial security.”
And if government red tape and rules add to the stress, a straightforward direct-deposited check from an insurer could be a relief.
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