DEFINITION of 'Unemployment Insurance'

Unemployment insurance is a small source of income for workers who have lost their jobs through no fault of their own. Workers who quit or who are self-employed are generally not eligible for unemployment insurance and must provide their own rainy-day funds to cover situations where no work is available. Unemployment insurance, for those who are eligible, is paid to workers by state governments from a fund of unemployment taxes collected from employers.

BREAKING DOWN 'Unemployment Insurance'

Unemployment insurance provides cash stipends to unemployed workers who are actively seeking employment. The unemployment initiative is a joint program between individual state governments and the federal government. Each state has its own unemployment insurance program, but all states must follow specific guidelines outlined by federal law, making unemployment benefits fairly ubiquitous across state lines. The U.S. Department of Labor oversees the program and ensures compliance within each state.

The unemployment insurance program offers up to 26 weeks of cash benefits a year for workers who meet specific eligibility requirements. The weekly cash stipend is meant to replace half of an employee's normal wage, on average. States pay for the weekly unemployment insurance using taxes levied on employers. Three states, however, also require minimal employee contributions to the state unemployment fund.

Those who do not find employment after the 26-week period may become eligible for an extended benefits program. This program gives unemployed workers an additional 13 to 20 weeks of unemployment insurance but only if the state's overall unemployment situation has deteriorated dramatically.

Eligibility and Claim Requirements for Unemployment Insurance

A person who becomes unemployed must meet two requirements to be considered for unemployment insurance. An unemployed individual has to meet state-mandated thresholds for either wages earned or time worked in a stated base period. The state must also determine that he is unemployed through no fault of his own. A person can file unemployment insurance claims If these two requirements are fulfilled.

An individual files his claim in the state in which he worked and subsequently lost his job. He can file his claim by phone or over the Internet at a state's unemployment insurance agency. It takes two to three weeks for processing and approval of a claim. After a person is approved, he must either file weekly or bi-weekly claims that test his employment situation and whether or not he remains eligible for payment. An unemployed worker cannot refuse work during a week, and on each weekly or bi-weekly claim, he must report any income made, even freelance work. Failure to do so can result in ineligibility.

RELATED TERMS
  1. Continuing Claims

    Continuing claims refers to unemployed workers that qualify for ...
  2. Unemployment

    Unemployment occurs when a person who is actively searching for ...
  3. Unemployment Claim

    A request made by an individual to the state government to receive ...
  4. Structural Unemployment

    A longer-lasting form of unemployment caused by fundamental shifts ...
  5. Natural Unemployment

    The lowest rate of unemployment that an economy can sustain over ...
  6. Full Employment

    A situation in which all available labor resources are being ...
Related Articles
  1. Insights

    The Cost of Unemployment to the Economy

    Unemployment carries many costs, both obvious and hidden, for an economy.
  2. Personal Finance

    What "Unemployment" Really Means

    Unemployment occurs when a person who is actively searching for employment is unable to find work. The most frequently cited measure of unemployment is the unemployment rate. This is the number ...
  3. Personal Finance

    Understanding the Unemployment Rate

    The unemployment rate is the percentage of people in the labor force who are unemployed but seeking a job.
  4. Personal Finance

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  5. Insights

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  6. Personal Finance

    What Qualifies as Full Employment?

    Full employment is an economic term describing a situation where all available labor resources are being utilized to their highest extent.
  7. Financial Advisor

    No Paycheck Doesn't Necessarily Mean No Income

    If you lose your job, be sure to apply for unemployment benefits. It's not welfare, but an insurance program that you and your employer have already paid into.
  8. Personal Finance

    Understanding Frictional Unemployment

    Frictional unemployment is one aspect of natural unemployment, which is unemployment caused by things other than an underperforming economy.
  9. Insights

    The Downside of Low Unemployment

    Yes, the unemployment rate can be too low.
RELATED FAQS
  1. Is there a natural rate of cyclical unemployment?

    Learn more about cyclical unemployment and find out about the relationship of cyclical unemployment to the natural unemployment ... Read Answer >>
  2. Do rising unemployment rates tend to increase or decrease investor sentiment and ...

    Discover whether rising unemployment rates tend to increase or decrease consumer confidence and investor sentiment. Unemployment ... Read Answer >>
  3. What are the key points when getting ready to file for unemployment aid?

    Before filing for unemployment aid, you must be unemployed, have worked in the past, lost the job through no your fault of ... Read Answer >>
  4. What is the difference between frictional unemployment and structural unemployment?

    Learn about structural unemployment and frictional unemployment, the differences between the two types and their main characteristics. Read Answer >>
  5. What's the difference between cyclical unemployment and seasonal unemployment?

    Learn about the key differences between cyclical and seasonal unemployment. Read about distinguishing features of each of ... Read Answer >>
  6. How does the U.S. Bureau of Labor Statistics calculate the unemployment rate published ...

    Understand the process used by the U.S. Bureau of Labor Statistics to determine the official unemployment rate for the United ... Read Answer >>
Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  3. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  4. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  5. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  6. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
Trading Center