Group life insurance can save you some money, but it also presents some complications. If you have ever had a job where your employer offered subsidized life insurance benefits, then you have encountered a group life insurance policy. These policies are precisely how they are named—life insurance policies where each plan is for an entire group. Most often, these types of policies are used for employment benefits, but not always.
According to insurance expert Laura Adams, “If you receive group benefits from an employer, you likely have the option to enroll in free or low-cost life insurance. But it’s important to understand what happens to a life policy when you leave a job or have work hours cut.”
The upside is cheap life insurance, but the downside is a lack of customization and the difficulty of figuring out what to do if you leave your job. That’s right, unless you take specific steps, you will lose your life insurance when you quit your job. Find the best life insurance rates in your area.
What happens to life insurance when you leave a job?
In short, you lose your group life insurance when you leave your job. The long answer is more complicated, though. When these types of policies are offered as employment benefits, the policy itself is held by the employer, and the designated group of people who can be insured under the policy are the employees. This arrangement means that the only people who are eligible for that group plan are those currently employed by the entity that took out the policy. As a result, employees who leave that employer are no longer eligible for such a group plan.
However, there are some workarounds. Changing jobs is an increasingly common part of the American economy, and insurance companies have made some efforts to adapt.
What should you do with your life insurance when you change jobs?
Generally, you have a few options to choose from, so consider what is best for your individual situation. Here’s what you need to know:
You can cancel the policy or simply let it lapse
Group life insurance usually terminates about a month after you leave your job, so in effect, it’s self-canceling. Ideally, to avoid a lapse in insurance between jobs, it is generally best to plan for the transition from an old job to a new one by arranging for employee life insurance coverage to take effect as the previous one is canceled.
You can inquire about whether the policy is portable
In most cases, employer-offered group life insurance is not portable—meaning that coverage won’t go with you when you change jobs. However, if your new employer offers a life insurance benefit from the same insurer as your previous employer, you may be able to keep your existing coverage. This may be a possibility with some of the largest life insurance companies.
You can convert your group policy into an individual one
You might be able to switch your group life insurance coverage to an individual policy if you leave your job and want to keep the same insurer. But this option likely comes with a rate hike, because conversion premiums tend to be higher than premiums for comparable individual policies that you can shop for on your own or with an agent.
Should you get life insurance through your job?
Getting life insurance through work has some advantages and disadvantages. Here are a few pros and cons you should factor into your decision.
What are the pros of getting life insurance through work?
As part of a benefits package, it makes sense to accept no-cost, guaranteed life insurance coverage that your employer offers—especially if you do not have any other life insurance. While the amount of coverage will typically be low, you generally will not have to pay much for it or supply medical information to qualify.
On top of that base policy, you also may be able to buy additional life insurance at more affordable group rates through your employer plan. That can boost your coverage amount up to a certain level—again, with guaranteed acceptance or limited health information required.
If you leave your job, you might have the option to convert your group policy to an individual life insurance policy—which can keep your coverage in force. This choice could be an advantage in certain situations, say, if you’re a senior or have poor health, and might have concerns about qualifying for an individual plan.
What are the cons of getting life insurance through work?
Basic life insurance through work is often automatic and free, but the amount of coverage could be much less than what you may actually need—leaving you underinsured. For example, typical employment life insurance coverage is often a fixed sum, like $50,000, or one to two times your annual salary—up to a limit. But some people may realistically need 10 times that amount or more to ensure adequate protection. Using a life insurance calculator can help you estimate the optimal amount of coverage you may need.
And if you leave your job, there are other downsides to continuing a life insurance policy with the former employer’s plan. For instance, you lose out on the opportunity to get more affordable rates and a wider range of policy options by comparison shopping for competitive life insurance quotes among the best life insurance companies.
This flexibility can be important for a couple of reasons. It allows you to be in control of the choice of company, as well as the life insurance costs, benefits and features that best fit your (and your family’s) needs. And it may also give you the chance to simplify your finances by getting life insurance from the same carrier that provides your home and auto insurance, too.
Frequently asked questions
What happens to my life insurance if I leave my job?
When you leave your employer, you become ineligible for that company’s group life insurance policy. If steps are not taken, your coverage will end shortly after your employment does.
Are group life insurance policies worth it?
They can be, depending on whether control or cost is more important to you. While they are less customizable and are easier to lose than an individual policy, group life insurance policies often have significantly lower premiums.
Do group life insurance policies have cash value?
No, group life insurance policies do not have an investment or cash value component.
Is it possible to keep your life insurance when you switch jobs?
In some situations, yes. Depending on the plan and the insurance company, you might be able to have your policy converted into an individual one or have it ported into the group policy of your new employer.
How long do you have insurance after leaving a job?
Insurance expert Laura Adams informs us that, “In most cases, coverage ends at the end of the month, or the following month, after you become ineligible for benefits or terminate employment.”