Dave Ramsey says: Layoff insurance is a gimmick to avoid

Dear Dave,

Some of the people I work with have been buying into a new kind of supplemental insurance that protects against layoffs.

It costs about $30 a month per person, and the full payout if you’re laid off is $9,000.

It seems to me you would have to be paying in for a long time to see that kind of return, so I wanted to see how you feel about this kind of thing.

— Steve

Dear Steve,

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. They must cover all the costs of operation, plus make a profit. Believe me, that takes a lot of money.

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 gimmick insurance.

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 simply saving money and 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, Steve, I’m not buying that stuff.

— Dave

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