Becoming unemployed is a life-changing event and a major cause of stress and frustration for families and individuals. Fortunately, most workers who lose their jobs are entitled to some benefits through employers or government programs that protect workers.
Employers are not required to offer severance pay or severance packages that include benefits to its workers. However, many companies do so voluntarily. Businesses that offer severance pay usually base it on a combination of factors, including salary level, length of service and unused vacation time. A severance package can be collected upfront or spread out over a period of time. Extended severance payments are known as salary continuation. Severance pay that exceeds your previous income counts as income for tax purposes, but all severance pay will likely disqualify you from state unemployment benefits.
When you become unemployed, your employer-sponsored health insurance is one of the most important benefits you can lose. However, you can continue coverage until you find a new job. The Health Insurance Portability and Accountability Act, or HIPPA, requires insurance companies to continue providing coverage to workers with pre-existing medical conditions for 12 months following a job loss. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, requires your employer's group insurance to offer you coverage for up to 18 months, though you'll pay the full premium yourself.
If you have a supplemental insurance policy that protects against unemployment or loss of income, you're entitled to make a claim and receive insurance payments once you lose your job. This type of insurance is usually outside a typical disability or life insurance policy. It will pay a predetermined benefit in addition to any severance pay you receive. Supplemental insurance allows unemployed workers to combine income sources to minimise the effects of job loss on a household budget.
Each state administers its own unemployment benefits program, which is available to workers who meet eligibility requirements. Those who receive unemployment must be partially or fully unemployed and available for work. They must also actively seek work to continue receiving benefits. State unemployment benefits are intended as short-term income while a worker is between jobs, although federal extensions can sometimes continue to supply unemployment benefits even once a worker's state benefits expire, especially in times of generally high unemployment.