What Happens to Your Benefits When You're Laid Off?

Luck Buffer · March 2026 · 8 min read

The day you're laid off, several clocks start ticking simultaneously. Your health insurance ends — often at end of month, sometimes immediately. Your stock options start a 90-day countdown. Your life insurance is gone unless you act within 30–31 days. Your 401(k) is sitting in your former employer's plan waiting for you to do something with it.

Missing these deadlines has real consequences. This article covers each benefit, what happens automatically, what you have to decide, and when your deadline is. Not knowing is not an excuse — none of these have grace periods.

Health Insurance (COBRA)

What happens automatically: Your employer-sponsored health insurance ends. The exact end date depends on your plan — most employer plans end coverage on your last day of employment, though some continue through the end of the calendar month. Your HR paperwork will specify this. Read it.

What COBRA is: The Consolidated Omnibus Budget Reconciliation Act gives you the right to continue your exact same health plan for up to 18 months after losing your job. You pay 100% of the premium — what you were paying plus what your employer was contributing on your behalf — plus up to 2% administrative fee. For most people, this is a significant shock. When your employer was covering $600/month and you were paying $150, COBRA costs you $760/month for the same coverage.

Average COBRA premiums in 2026: $600–$800/month for individual coverage, $1,700–$2,000/month for family coverage. These are national averages — employer plan rates vary significantly.

Your deadline: You have 60 days from either the date you lose coverage or the date you receive your COBRA election notice (whichever is later) to elect COBRA. The critical thing most people don't know: if you elect COBRA, your coverage is retroactive to the date you lost it. So you can wait the full 60 days, and if nothing happens medically, let COBRA expire unelected. If something does happen and you need healthcare, elect COBRA within 60 days and the gap in coverage is filled retroactively.

What to do: Don't automatically enroll in COBRA on day one. First, compare your options. Marketplace plans at healthcare.gov may be cheaper than COBRA — a job loss qualifies you for a Special Enrollment Period. If you're going onto a spouse's or domestic partner's plan, that's often the cheapest option. If you're under 26 and a parent has coverage, that's another option. Only elect COBRA if it's genuinely your best option — or as a backstop while you compare alternatives.

Once you know your health insurance costs, add them to your monthly burn rate. This single number can shift your runway by months. Use the COBRA vs ACA Calculator to compare your exact options side by side.

Your 401(k)

What happens automatically: Nothing, immediately. Your 401(k) stays in your former employer's plan. You stop making contributions because you no longer have a paycheck, and your employer stops matching. The money stays invested and continues to grow or decline with the market.

Your three options:

• Leave it where it is. If your former employer's plan has good low-cost index funds, this is fine short-term. You lose the ability to contribute, and some plans charge higher fees to former employees. Check the fee schedule.
• Roll it to an IRA. A direct rollover from your 401(k) to a traditional IRA at a brokerage (Fidelity, Vanguard, Schwab) is not a taxable event. You gain access to a broader range of investments and typically lower-cost options. This is the most common choice and usually the right one.
• Cash it out. This is almost always the wrong choice. You pay ordinary income tax on the entire amount, plus a 10% early withdrawal penalty if you're under 59½. On a $50,000 balance, you might net $30,000 after taxes and penalties depending on your tax bracket. The money also loses decades of compound growth. Only consider this if you're genuinely in a financial emergency with no other options.

Your deadline: If your balance is under $5,000, your employer may force a distribution or roll it to an IRA on their terms within a set timeframe. If your balance is above $5,000, there's no forced deadline — but you should initiate a rollover within 60–90 days before it slips off your radar.

What to do: Open a rollover IRA at a brokerage if you don't have one. Call your 401(k) plan administrator and request a direct rollover — the check goes directly to the new institution, not to you. If the check is sent to you, you have 60 days to deposit it into an IRA before it's treated as a taxable distribution, and 20% will be withheld for taxes automatically.

Do not use your 401(k) to fund your job search period unless you've exhausted every other option. It's your future self's money.

HSA (Health Savings Account)

What happens automatically: Nothing bad. Your HSA is yours. Unlike a Flexible Spending Account (FSA), an HSA is not tied to your employer — it moves with you. You keep every dollar in it regardless of when or why you left your job.

What you can do with it: HSA funds can be used tax-free for any qualified medical expense — doctor visits, prescriptions, dental, vision, and many over-the-counter items. If you're on COBRA, you can use HSA funds to pay your COBRA premiums. After age 65, you can use HSA funds for any purpose (not just medical) and pay only ordinary income tax, making it effectively a second IRA.

One catch: While you have an HSA balance you can spend, you can only contribute new money to an HSA if you're enrolled in a qualifying high-deductible health plan (HDHP). If you switch to a non-HDHP plan (including most COBRA plans that aren't HDHPs, or marketplace plans), you stop being eligible to contribute. You can still spend the existing balance — you just can't add to it.

What to do: Leave the HSA invested. Don't cash it out. Use it to pay legitimate medical expenses tax-free. If you have a significant balance, consider keeping it invested for the long term rather than spending it on minor expenses.

Life Insurance

What happens automatically: Employer-paid group life insurance ends with your employment. This is one of the most commonly overlooked benefits. If your employer was providing life insurance at one or two times your salary, that coverage disappears on your last day.

Your deadline: Most group policies give you 30–31 days from termination to convert the group policy to an individual policy, or to port the coverage to a new individual policy. This is a hard deadline — after 30–31 days, the option expires and you lose the right to convert without underwriting.

What to do: If you need life insurance coverage — you have dependents, a mortgage, or other obligations — act within the first two weeks. "Convert" means buying an individual whole life policy from the same insurer at their standard rates (no medical exam required, but expensive). "Port" means continuing group term insurance under a separate individual policy (cheaper, but still requires a premium). Both are options your HR paperwork or benefits administrator should explain. In many cases, buying a new term policy on the open market is cheaper than converting — but you'll need to qualify medically.

If you're single, have no dependents, and no significant financial obligations that would burden someone else, life insurance may not be an urgent priority right now. Focus your limited budget on health coverage first.

Stock Options

What happens automatically: Your unvested stock options are almost certainly forfeited on your termination date. Your vested options typically enter a post-termination exercise window — usually 90 days from your last day. After 90 days, unexercised vested options expire worthless.

What "vested" means: Options that have completed their vesting schedule — you've earned the right to buy shares at the grant price. "Unvested" options are those still in the vesting schedule at the time of your termination. Unless your severance agreement includes accelerated vesting (worth negotiating for), unvested options are gone.

The 90-day deadline: This is the most commonly missed deadline in a layoff. Ninety days sounds like plenty of time. It isn't, if you're dealing with a job search, financial stress, and moving paperwork. Check your option grant agreements — some companies grant Incentive Stock Options (ISOs) that retain favorable tax treatment if exercised within 90 days of termination, but convert to Non-Qualified Stock Options (NQSOs) with less favorable treatment after that window. Know what type of options you have.

What to do: Find your option grant agreements today. Log into your equity platform (Carta, Shareworks, E*Trade, Fidelity, or similar). Write down how many vested options you have, what the strike price is, and what the current fair market value is (for private companies, this is the 409A valuation; for public companies, it's the stock price). If the options are "in the money" — meaning the current value exceeds your strike price — decide whether to exercise before the 90-day deadline. If they're "underwater" — strike price exceeds current value — they have no practical value to exercise.

One important note: Exercising stock options has tax consequences. For ISOs, there may be Alternative Minimum Tax (AMT) implications. For NQSOs, the spread is ordinary income. Talk to a CPA before exercising a large block of options, especially if the underlying stock is illiquid (private company). Don't let a tax concern cause you to miss the deadline entirely — missing it means you lose the options for certain.

Unemployment Insurance

Unemployment insurance isn't a benefit from your employer — it's a state-run program you've been paying into. But the timing matters. File the week you're laid off, not when you feel like it. There's typically a one-week waiting period before benefits begin in most states, so every week you delay is a week of benefits you don't get back. The average weekly benefit is $400–$600 in most states; maximums range from about $235/week in Mississippi to over $900/week in Massachusetts.

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