This post was inspired by a thought experiment I found myself spiraling into recently: Why can’t I just buy insurance against getting fired?
We insure our cars against crashes, our homes against fires, and our bodies against illness. Yet, for most knowledge workers, the single biggest threat to our financial livelihood – a sudden, involuntary layoff – remains completely unhedgeable in the consumer market.
The reason for this is something economists call the "lemon problem" (h/t Akerlov). It’s the messy reality of insurance: if a company offered a policy that paid out when you lost your job, the only people who would rush to buy it are those who know they’re about to be fired (adverse selection). And once they had it, they might stop working hard (moral hazard). No sane actuary would touch it.
But just because the product doesn't exist on a shelf doesn't mean the outcome – financial liquidity during a crisis – is impossible to engineer.
If we look at this through a product lens, we are trying to solve a user need (survival capital) that the market can't provide. When the market fails, you have to build the solution yourself. You have to move from being a passive consumer of insurance to an active manager of risk.
Here is how you can construct a "synthetic" unemployment policy, moving from financial abstraction to structural lifestyle engineering.
The "Industry Short" (Hedging the System)
The most direct correlation to a mass layoff is the health of your specific industry. If you work in Big Tech, your job security is tied to the NASDAQ-100. If you are in crypto, it’s Bitcoin. If you're in most other industries, it's probably closer to the overall health of the economy, so something like the S&P500.
In the financial world, you can hedge this via Put Options.
- The Mechanism: You buy long-dated Put options on an ETF that tracks your sector.
- The Reality: This acts as your premium. You are bleeding small amounts of money (theta decay) every month to hold these contracts.
- The Payoff: If the industry craters, which is usually when the mass layoff emails go out, the value of these options spikes. You cash them out to subsidize your life while you hunt for a new role.
This creates a "straddle" of your own: you are long your career (salary), but short your industry (options). If one fails, the other pays.
The "Income Swap" (Peer-to-Peer Risk Pooling)
This moves away from the cold calculus of markets and attempts to recreate the "friendly societies" of the 19th century.
The idea is simple: You form a pact with 3–4 peers in uncorrelated industries. You want a portfolio of friends: one in GovTech, one in Healthcare, one in Utilities.
- The Contract: If any member is involuntarily laid off, the employed members contribute $X/month to the unemployed member for a set period. Better yet, you've all contributed a monthly "premium" for a while that's sitting in a pot earning money market returns until it's needed (this reduces the risk of illiquidity problems from the other members at a critical time).
- The "Moral Hazard" Fix: Because you are friends, social pressure does the heavy lifting. You know if your friend is actually trying to find a job or just gaming the system.
It’s messy, human, and relies on trust rather than contracts, but it solves the problem.
The "Overemployment" Stack (True Diversification)
In investment theory, diversification is the only free lunch. In the career world, we often ignore this, putting 100% of our time into a single asset (our job).
The most robust synthetic insurance is simply decoupling your cash flow from a single point of failure. The means maintaining a secondary income stream: a small SaaS, a rental property, a standing consulting retainer that covers your minimum viable burn rate.
That way if your main job disappears, you don't face a sudden, wrenching liquidity crisis; you only face a reduction in your savings rate. Far less life upheaval as a result!
The Critical Flaw: Idiosyncratic Risk
There is, however, a catch.
The reason real insurers don't write this policy is the same reason you can't perfectly synthesize it: Idiosyncratic Risk.
If you are fired because you punched a client, or because your specific manager dislikes you, or because your specific startup failed while the rest of the sector boomed, financial derivatives will not pay out. The NASDAQ can hit an all-time high the same day you get walked out of the building. Ditto for the income swap I pitched above: your friends are likely to be unsympathetic to your sudden unemployment if it was your own damn fault.
The only true hedge for idiosyncratic risk is employability. It is the network you build and the skills you sharpen that ensure your duration of unemployment is short.
Key takeaway: You cannot outsource the risk of your own career. The market won't save you, so you must act as your own CFO. Build the hedge, diversify the income, and accept that the best insurance policy is usually just being very, very good at what you do.
Good luck!
