Benefits portability, or the ability to take employment benefits from one employer to another, can be a concern for employees switching jobs.
Some benefits like a health savings account (HSA) can travel with people as they move from job to job. But other benefits, such as group life insurance, often end shortly after employment does. What should an employee do when they face losing their sole source of term life insurance?
Understand the next steps for the existing policy
When an employer terminates life insurance coverage, they are legally obligated to notify the employee. In addition to the termination notice, employers must give employees information on converting the group life insurance policy to an individual policy, if eligible.
In addition to conversion, someone may be able to keep the existing policy as long as they take over premium payments. However, since each employer and insurer may be different, it’s best to work with the employer’s human resources team to determine the next steps.
Determine timelines for coverage changes
Some plans may allow conversion from group life to individual life insurance, but there is a timeframe for completing the change. Often, former employees will have about a month to decide whether or not to convert the policy. Then, if someone chooses to convert to an individual policy, they’ll sign a new contract with the life insurance company and begin paying premiums.
Find a new policy before coverage lapses
Life insurance policies are often canceled about a month after terminating employment if no action is taken. For someone moving into a new job quickly, a new employer may offer a similar group life insurance policy at no cost. If someone decides to take time off between jobs, they may seek out an individual life insurance policy through the same insurer or a different one with more favorable coverage amounts and rates.
Either way, locking in a new life insurance policy before coverage lapses can help employees keep peace of mind that they have a policy in place that will benefit loved ones if something unexpected happens.
Make sure coverage is sufficient
Group life insurance plans are a sole source of life insurance coverage for many. But often, group plans don’t provide enough coverage to fulfill debt obligations or provide for loved ones the way most people imagine they will. A transitional period of losing life insurance coverage is a smart time to reassess coverage needs.
Younger unmarried individuals with no debt may find that a group plan is sufficient, but those with families or larger debt obligations, like a mortgage, may find they need to seek out an individual policy in addition to group coverage to meet their financial and familial needs.
The bottom line
When an employer discontinues life insurance coverage, it’s an opportunity to reassess coverage needs and lock in an effective policy (or policies) going forward. Employees should understand their options, know the relevant timelines, and find new coverage at the right level. Doing so can provide peace of mind that loved ones will be cared for financially if the unexpected happens.