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.

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