It's a gimmick

Steve asks Dave about a new supplemental insurance that covers layoffs. Dave thinks it's just a gimmick. He advises Steve to self-insure for things like this with an emergency fund.

QUESTION: Some of Steve’s co-workers are buying into a new kind of supplemental insurance that protects against layoffs. It costs $30 a month per person and the full payout, once you’re vested, is $9,000. Dave thinks it’s a gimmick. He advises Steve to self-insure against this kind of thing.

ANSWER: Anytime insurance is there for something you could cover yourself, it’s a good idea to stop and remember that every insurance company is still a business. Statistically speaking, if lots of people cashed in on a policy like this an insurance company would go out of business. We’re talking about only $30 a month to cover $9,000. That alone tells you not many people cash in. It’s a gimmick.

On average, you’re losing money when you buy insurance of any kind. Again, on average, over the scope of your lifetime you’d be better off self-insuring against things like this. The only things I recommend buying insurance for are things you can’t afford to cover personally. But you can afford to cover a layoff by saving an emergency fund of three to six months of expenses.

If I’m in your shoes, I’m not buying that stuff.