Severance, COBRA & Benefits: What to Check Before You Sign

The severance packet usually lands at the worst possible moment—right when you are too rattled to read carefully. That is exactly why you should not rush it. The agreement, your health coverage, your retirement account, and unemployment are four separate things, each with its own clock. This guide walks through all four in plain English so you know what is on the table before you sign anything.

A note up front: this is general guidance, not legal or financial advice, and the specifics vary by country, state, and employer. For anything with real money attached, a short consult with an employment lawyer or a fiduciary advisor often pays for itself.

Severance: read it slowly, sign it later

A severance agreement is a trade: the company offers money (and sometimes continued benefits or a reference) in exchange for things you give up—often the right to sue, and sometimes non-disparagement or non-compete terms. Before you sign, get clear on a few questions:

• How much, and how is it paid? A lump sum and salary continuation have different tax and unemployment implications.
• What am I agreeing to give up? Releases, non-disparagement, non-compete, and confidentiality clauses all have real consequences.
• What about benefits and references? Sometimes the end date of health coverage or the promise of a neutral reference is negotiable even when the dollar amount is not.
• How long do I have to decide? Honor the review window. If workers over 40 are involved, US law typically grants 21 or 45 days plus a 7-day revocation period.

Is severance negotiable?

Sometimes. Large reductions in force often use a fixed formula with little flex, but individual exits can have room—especially around the payout, the benefits end date, outplacement help, or the wording of a reference. Ask once, in writing, politely. The worst case is a "no," and you have lost nothing.

Negotiating severance uses the same muscle as negotiating an offer: anchor on specifics, stay warm, and ask for one or two things—not ten. The mindset in our salary negotiation guide transfers directly.

Health coverage: find the gap before it finds you

The single most important date in your packet is when your health plan ends. Once you know it, compare your options rather than defaulting to the first one:

• COBRA (US): keeps your exact employer plan, but you pay the full premium—often a shock, because the employer subsidy disappears. Good for continuity of doctors mid-treatment.
• Marketplace plan: a layoff is a qualifying life event that opens a special enrollment window, and subsidies may make a marketplace plan far cheaper than COBRA.
• A spouse or partner's plan: losing coverage usually lets you join their plan outside the normal enrollment period—often the simplest and cheapest route.

Run the numbers on at least two of these before you commit. Many people pick COBRA on autopilot and overpay for months.

Your 401(k): do not cash it out on impulse

Your retirement account is yours, and you generally have a few choices: leave it in the old plan, roll it into an IRA, or roll it into a future employer's plan. Cashing it out feels tempting when income stops, but it usually triggers income tax plus an early-withdrawal penalty—a costly way to access money. Treat it as a last resort, and protect the runway you do have through a calm financial triage instead.

Unemployment: file promptly

File for unemployment as soon as you are eligible rather than waiting—benefits typically do not backdate to before you applied, so every week of delay is money left on the table. Being laid off (as opposed to quitting or being fired for cause) generally qualifies you. Severance can affect the timing or amount depending on your state/region, so report it honestly and let the agency sort out the schedule.

Put it on a single checklist

Pull the four threads onto one page: the severance decision and its deadline, the date your health plan ends, the plan for your 401(k), and your unemployment filing. With those handled, the financial fog lifts enough to focus on the search itself. When you are ready, a 30/60/90-day plan turns that focus into momentum—and you can rebuild your resume free whenever you feel up to it.