Key Points
- When you leave a job, you must either port, convert, or cancel your employer-provided life insurance.
- If you leave your job under special circumstances, some exceptions applicable under the law allow you to enjoy the coverage for a limited time.
- Your employer-provided life insurance plan is either basic or supplemental group life insurance.
- Group life insurance is cheap and convenient but has certain disadvantages, especially for young and healthy employees.
- You might want to consider an individual life insurance plan as opposed to the group plan made available by your employer.
- If you have term group insurance from your employer, you cannot enjoy cash benefits. However, it might be possible if you have permanent group insurance.
If you have an employer-sponsored life insurance policy, you’re probably enjoying low-cost coverage. But what happens to that coverage when you get fired or move to another job?
Most workplaces offer standard life insurance coverage for their employees through a group plan. The arrangement varies from one office to another, but the general rules remain the same.
Under a group insurance plan, the employer either pays for the most or the whole premium. That looks great, but you will not be a part of the group plan after leaving the job.
Your Options
When you get a job, it is vital to note the kind of life insurance policy your office will offer. It can help you uncover the option you will have after leaving that job. In most cases, there are three main options; Cancel, Port, or Convert your employer-provided life insurance.
Cancel
If your employer-sponsored life insurance plan doesn’t support any other options, it will get terminated upon your resignation or dismissal from the organization.
If you’re moving to a new job, you will have to apply afresh for a new coverage plan. It is a simple solution but not ideal because of these two reasons:
- You have advanced in age since the time of your first employment.
- Your current health status might be different compared to when you were younger.
These two factors will also determine how expensive your new life insurance plan will be. To avoid canceling a long-time policy only to start again with possible restrictions, most people keep individual life insurance plans active even after moving to a new employer.
With this method, you have control over your life insurance policy irrespective of your job status or current employer.
Port
Most traditional employer-provided life insurance policies give employees the option of leaving their insurance coverage behind when they leave the company.
It is unfavorable for:
- the employer who might not be able to afford a more expensive plan
- the company that will lose its appeal when compared to other company’s life insurance plans
- the insurance company that might lose a customer when one person leaves a job
Because of these reasons, many group insurance policies now offer an option called portability. This option allows you to apply for continued insurance coverage even after leaving your place of employment.
If you want to continue your life insurance after separating from the job, it might be a good option. Make sure you read your current insurance plan closely to understand the rules of portability (if they exist).
Convert
If you are interested in continuing with your life insurance policy even after separating from the job, you can also get it converted. Conversion, offered by many companies, means you will leave the group insurance policy and get it converted to an individual cash-value or permanent life insurance policy.
This conversion system is not only advantageous for employees but insurance companies as well. Most insurers believe that employees understand the difference between group insurance and individual insurance, so they permit the conversion of term life insurance policy into an individual one.
Note that not all employer-provided insurance plans allow this kind of arrangement, and you would have to check with your human resources department to confirm if it is possible. If a conversion is possible and successful, keep in mind that all premiums will be fully payable by you and no longer supported by your former employer.
What Happens to Life Insurance When You Leave A Job Under Special Circumstances?
Apart from getting fired or voluntarily leaving a job, there are some other distinctive circumstances under which an employee can leave the job. In such cases, it becomes necessary to consider what will happen to your life insurance.
Disability
If you stop working due to a disease or other illness qualified as a short-term disability, your employer-provided life insurance may still cover you for up to one year from the date you stop working.
For example, if you are severely ill because you are receiving cancer treatment, you will get disability benefits and be covered by life insurance for up to a year.
- The ERISA Claim: ERISA stands for the Employee Retirement Income Security Act. If you are unable to work because of short-term or long-term disability reasons and your employer denies life insurance coverage, you can raise an ERISA claim.
Your employer and the insurance company cannot cut you off from a group life insurance plan unless they notify you that the policy will soon end and suggest the next available options. After being advised, you will have some time to convert the insurance policy before it expires.
Retirement
Some group insurance plans treat retirement a little differently from resignation or termination. Especially for government-sponsored employee life insurance plans, you might have an opportunity to continue as part of the group plan after you retire.
This arrangement usually requires that you serve for a certain number of years before it can work. That means if the stipulated time is 15 years, you have the option to remain an active part of the plan if you retire after 15 years of service.
Eligible persons will have their coverage active and intact with premiums still full or partly paid by the employer.
Cashing Out Employer’s Life Insurance Policy
Most of the group life insurance employees receive from their workplace is a term and not whole life insurance. It is usually the case whether your employer paid the full premium or supplemented payment for you.
If you are also under this kind of package, there will be no cash value on your insurance. You cannot cash out on such a life insurance policy when you leave the company.
However, some employers provide group permanent life insurance for employees. Although you will be paying your premium from your paycheck, it’s a better deal at a discounted price. If you have this kind of life insurance policy with your company, you can enjoy some cash value from it.
Also, take note that most group term life coverage can be converted to group permanent life coverage by the employee. If a conversion is allowed on your plan, you will get around a month to act. If you take advantage of this and convert your term policy to a permanent one, you can enjoy cash value on your new plan.
Experts recommend conversion, if available. Since it saves you the extra cost of taking out a possibly more expensive life insurance plan, it is a good option when you leave a job.
Things to Do (Insurance-Related) After Losing Your Job
If you lost the job and are concerned about your employee life insurance, you can do the following:
• Evaluate Your Insurance Needs
Ask yourself whether you require life insurance or not. If you are married, have dependents, and loses employee life insurance because of losing the job, you can get in touch with a talented financial planner and discuss your situation. He/she will assess your condition and suggest the best way to keep you and your family protected.
• Evaluate Your Eligibility
As employee life insurance is group insurance, you often don’t undergo medical exams or other tests. But things change when you lose/leave the job. If you get your policy converted, the advantages of group insurance no longer apply. Sometimes, insurance companies do not continue with people beyond a specific age or dealing with serious health problems.
• Contact Your Former Company’s HR Department
Many companies organize financial wellness programs to better understand the benefits their employees need. If you were working in such a company, its HR department might be having some useful information for you. So, get in touch with the HR department of your former company.
• Take Quick Action
After evaluating your insurance needs and gathering useful information from your former company’s HR department, you must take quick action. It is because insurance companies do not provide much time to decide and act. Usually, you get 30 days to cancel, convert, or port your employer-provided life insurance.
• Look for Temporary Solutions
You can look for temporary solutions like a short-term life insurance policy or accidental life insurance. You can also go for a final expense insurance policy that covers the funeral cost. Another temporary solution can be a life insurance policy with smaller coverage.
Frequently Asked Questions
When it is about the significance of an employer-provided life insurance policy after leaving the job, many questions arise in the minds of people. Here are answers to some of the most frequently asked questions:
1. Is Employee Life Insurance Necessary?
It is, mostly, a part of the benefits package offered by your employer. You can say that it is some kind of necessary. However, the most important thing is that it provides financial support to your family members in case of your unfortunate death.
2. If my insurer allows converting my employer-provided group life insurance to an individual insurance plan, can I modify the sum insured/coverage also?
It is an insurer or policy-specific question, which means your insurer or the concerned person can provide you the exact answer. However, many insurance companies allowing conversion also allow modifying (usually increasing) the coverage amount.
It means you can get the death benefit raised as per your requirement or up to the upper limit of the plan.
3. How long will my current employer-provided life insurance coverage last if I leave a job?
The duration of life insurance coverage provided by the employer may vary from insurer to insurer, so it is best to contact the insurance company about your options.
Usually, insurance companies give you 30 days, after separation from the job, to decide what must be your next step. If you do nothing, your current policy lapse leaving you without any coverage after the end of this period.
4. What things make an employer-provided group life insurance advantageous?
An employer-provided group insurance policy is advantageous because of the following reasons:
- All employees of the company/organization are eligible for the basic coverage.
- The premium of such insurance is either nil or easily affordable. In other words, it doesn’t put any financial burden on employees.
- In case employees need to pay the premium, it gets deducted automatically from the paycheck. It means freedom from budgeting worries.
- It is the best option for people owning no insurance policy. Yes, something is better than nothing.
5. What happens to the life insurance coverage in case of a temporary layoff?
When you are laid off temporarily, for whatever reason, the insurance policy can keep you covered for up to 12 months. For this to happen, you must make prior arrangements about premium payments with the relevant department.
Final Words
Have you ever considered what happens to life insurance when you leave a job?
You should carefully consider the insurance plan offered by your employer before jumping on the boat. The group life insurance package most employers offer is term insurance. Despite being convenient, cheap, and not requiring a medical exam, it might not be the right fit for you.
As you won’t be an employee of your current employer forever, you should begin considering alternative coverage for when you leave. It’s great if you can convert or port your group insurance policy, but you can still make plans for if you must cancel.