Group life insurance can save you some money, but it also presents some complications. If you’ve ever had a job where your employer offered subsidized life insurance benefits, then you’ve encountered a group life insurance policy. These policies are precisely how they’re 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’ll lose your life insurance when you leave 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 a bit 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. In the next section, we’ll discuss the various ways you can avoid losing your life insurance coverage when you leave or change jobs.
How to avoid a lapse in coverage
In general, there are three standard options when changing jobs:
- You can cancel your policy or allow it to lapse.
- You can speak with the insurance company about porting your plan to the group plan of your new employer.
- You can have your group policy converted into an individual one.
The first option, on its own, will lead to a lapse in coverage. So, if you do cancel your policy, the trick is to speak with an insurance company first and arrange for a new plan to take effect as the previous one is canceled.
The second choice is the best of the three, when it works. For this to work, your new employer will likely need to use the same life insurance company as your previous employer. Otherwise, the odds of being able to port your policy are low.
The problem with the third option is that converting your group plan into an individual one leaves you paying all the premiums without getting to do any deal hunting or shopping around first. This situation can lead to paying a higher premium for your coverage than you otherwise might.
Frequently asked questions
What happens to my life insurance when 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?
It 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.”