What is 'Unemployment Insurance'

Workers may receive benefits from unemployment insurance if they have faultlessly lost their jobs and meet other eligibility criteria. Workers who voluntarily terminate employment, and those who are self-employed, are not eligible for unemployment insurance and must use personal funds to cover situations when no work is available. State governments pay unemployment insurance from a fund of unemployment taxes collected from employers.

BREAKING DOWN 'Unemployment Insurance'

 

The unemployment initiative is a joint program between individual state governments and the federal government. Unemployment insurance provides cash stipends to unemployed workers who actively seek employment. Compensation to eligible, unemployed workers is through the Federal Unemployment Tax Act (FUTA) along with state employment agencies.  

Each state has an unemployment insurance program, but all states must follow specific guidelines outlined by federal law. Federal law makes unemployment benefits relatively ubiquitous across state lines. The U.S. Department of Labor oversees the program and ensures compliance within each state.

Workers who meet specific eligibility requirements may receive up to 26 weeks of cash benefits a year. The weekly cash stipend is designed to replace half of the employee's regular wage, on average. States fund unemployment insurance using taxes levied on employers. The majority of employers will pay both federal and state unemployment FUTA tax. Companies that have 501(c)3 status do not pay FUTA tax. Three states also require minimal employee contributions to the state unemployment fund.

Out of work persons who do not find employment after a 26-week period may become eligible for extended benefits program if it is available. Extended benefits give unemployed workers an additional 13 to 20 weeks of unemployment benefits. The availability of extended benefits will depend on a state's overall unemployment situation.

Eligibility and Claim Requirements for Unemployment Insurance

There are two primary requirements an unemployed person must meet for unemployment insurance benefits. An unemployed individual must meet state-mandated thresholds for either earned wages or time worked in a stated base period. The state must also determine that the eligible person is unemployed through no fault of his own. A person may file unemployment insurance claims when fulfilling these two requirements.

Individuals file claims in the state where they worked. A participant may file claims by phone or on the state unemployment insurance agency's website. After the first application, it will take two to three weeks for processing and approval of a claim. 

After approval of a claim, the participant must either file weekly or bi-weekly reports that test or confirm their employment situation. Reports must be submitted to remain eligible for benefit payments. 

An unemployed worker cannot refuse work during a week, and on each weekly or bi-weekly claim, they must report any income which they earned. Reportable income includes freelance work or work they were paid for in cash.

RELATED TERMS
  1. Continuing Claims

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

    Structural unemployment is a longer-lasting form of unemployment ...
  3. Unemployment Compensation Amendment ...

    Unemployment Compensation Amendment of 1992 allows a terminated ...
  4. Unemployment Rate

    The unemployment rate is the percentage of the total labor force ...
  5. Hysteresis

    In economics, hysteresis refers to an event in the economy that ...
  6. Jobless Claims

    Jobless claims are a statistic reported weekly by the U.S. Department ...
Related Articles
  1. Insights

    The Cost of Unemployment to the Economy

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

    How To Apply For Unemployment Insurance

    Unemployment compensation is a federal program administered by each state. Here's how to connect to your state's unemployment office and what to expect.
  3. Personal Finance

    Where Unemployment Hits Hardest

    A look at the demographics of unemployment, and what that means for workers around the nation.
  4. Personal Finance

    U.S. Labor Participation Rate at Record Lows

    In absolute terms, labor participation hit an all-time low.
  5. Investing

    How inflation and unemployment are related

    How can inflation affect unemployment, and vice versa? Here, we examine the relationship between wage inflation, consumer prices, and unemployment.
  6. Personal Finance

    What The Unemployment Rate Doesn't Tell Us

    The unemployment rate is climbing, but what does it mean?
  7. Investing

    Did Your State Cut Unemployment Benefits?

    Many of the states now cutting back on unemployment benefits significantly under-funded their coffers prior to the Great Recession.
  8. Insights

    Jobs Beat Forecasts, But "Real" Unemployment Rises

    The "real" unemployment rate, which accounts for discouraged and temporary workers, rose to 9.7% in July from 9.6% the month earlier
  9. Personal Finance

    Help—my unemployment benefits are running out!

    Don't wait for your unemployment insurance to expire before planning what to do if you haven't found a new job yet.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What is the key difference between the participation rate and the unemployment rate?

    Learn the key differences between the participation rate and unemployment rate, and how they can provide a clearer picture ... Read Answer >>
  4. Why does unemployment rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to rise during ... Read Answer >>
  5. What can policymakers do to decrease cyclical unemployment?

    Learn about the tools available to policymakers to reduce cyclical unemployment, and find out more about the role of expansionary ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center