What Happens To Your Work Life Insurance When You Leave?

People often find that the most cost-effective way to buy life insurance is to buy the supplemental life insurance that many employers offer – it’s typically offered as part of a group policy, meaning that the risks are spread among more people, which usually makes it a lot cheaper than similar coverage would be for just you on the open market.

Guaranteed issue

This is an especially helpful benefit for people with health conditions that make buying insurance on the open market difficult – if you sign up at the same time you’re initially enrolling in benefits, most policies are “guaranteed issue,” meaning that there are no health evaluations necessary. Forgoing that early opportunity often means forgoing that guarantee of coverage, so it’s something you’ll want to think carefully about.

Tied to your job

One of the downsides we often discuss is the fact that it is, obviously, tied to your job. That can cause some people to forgo the coverage altogether, but before you do that, it’s a good idea to understand what the options would be if you do end up leaving. Here’s what you’ll want to look into if that’s a concern that you have:

Consider whether you’ll still need the same amount of insurance

The first step in deciding what to do with an insurance policy (or whether to buy any at all) is to decide how much insurance you need. A great resource to do this are the calculators on lifehappens.org.

Remember that what you need today may not be what you’ll need in the future, so for example, many people are comfortable leaving supplemental policies at work when they retire, as the need for insurance is no longer there due to children having grown along with adequate retirement savings to support any surviving dependents.

If you’ve determined that it is a good idea to purchase the insurance, here’s what you’ll want to know about whether you can take it with you should you leave:

  • Is it portable? Portable means exactly what it sounds like: can you take it with you? Typically that means you would have to pay the cost of insurance, which may be higher than the group rate you’ll pay while working there. There may be some requirements (tenure, age, health, etc.) that you must meet. If it is portable and you exercise that option, you basically end up with a new insurance policy that is considered an individual yearly renewable term policy.
  • Is it convertible? This means you can change from a term policy to a whole life insurance policy or universal life insurance policy without showing evidence of insurability (that means you don’t have to go through underwriting and can be really important if you’ve experienced any health issues such as cancer, diabetes, arthritis, etc.) Many people choose this option when available in order to cover their final expenses (such as insurance for medical bills, funeral costs, etc.), which allows them to pass along any remaining retirement savings to their heirs.

If you have a health condition that would make you uninsurable, using the portability and convertibility option may be your only way to maintain life insurance. If you are insurable but only at higher premium rates, the portability and convertibility option may allow you to keep life insurance at a lower rate.

If, at the time you’re leaving a job, you are healthy, you may be able to buy a new insurance policy for a lower premium than you’d pay by continuing your group policy. If you’re moving to another employer that also offers supplemental insurance, then you could purchase coverage through your new employer if they offer it or you could buy your own policy. 

Like much of financial planning, figuring out the best thing to do here involves a bit of predicting the future. But knowing what the options are can help you at least run worst-case scenarios as you decide.

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