What happens to your life insurance when you leave a job?
Many employers include group life insurance as part of their employee benefits packages at little or no cost. This type of life insurance is typically subsidized by your employer, which can make it an excellent value because coverage typically costs no more than a few dollars per month. But what happens when you leave your job and your group life insurance policy?
In most cases, you'll be forced to abandon the life insurance policy. However, there may be ways to avoid losing your group life insurance policy when you quit your job. In this article, we'll look at whether it makes sense to get life insurance through your employer and what happens to this type of policy when you leave your job.
What happens to life insurance when you leave a job?
In short, when you leave your job, you lose your group life insurance. The long answer, on the other hand, is more complicated. When these types of policies are offered as employment benefits, the policy is held by the employer, and the employees are the designated group of people who can be insured under the policy. Because of this arrangement, the only people who are eligible for that group plan are those who are currently employed by the entity that purchased the policy. As a result, former employees are no longer eligible for such a group plan.
There are, however, some workarounds. Job changes are becoming more common in the American economy, and insurance companies have made some efforts to adapt.
What should you do with your life insurance when you change jobs?
When you change jobs, you can ask HR if you can keep your policy. If not, you can cancel or let your policy lapse. Here's what you should know.
- You can cancel the policy or simply let it lapse: Group life insurance usually expires about a month after you leave your job, so it effectively cancels itself. To avoid insurance gaps 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 begin as soon as the previous one is canceled.
- You can inquire about whether the policy is portable: Most employer-provided group life insurance is not portable, which means that coverage does not follow you when you change jobs. If you are able to port your group policy to an individual term life policy, your rates will almost certainly be higher than your original premium.
- You can convert your group policy into an individual one: If you leave your job, you may be able to convert your group life insurance coverage to an individual whole life policy. However, this option will be more expensive because conversion premiums are typically higher than premiums for group policies.
Should you get life insurance through your job?
Obtaining life insurance through your employer has both advantages and disadvantages. Here are some pros and cons to consider when making your decision.
Pros | Cons |
It’s typically subsidized or free through your employer. | The amount of coverage could be much less than what you may actually need—leaving you underinsured. |
You don’t have to supply medical information to qualify. | Group insurance is usually one-size-fits all with a low death benefit, so it’s difficult to get benefits and features that best fit you and your family’s needs. |
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. | If you leave your job, there are other downsides to continuing a life insurance policy with the former employer’s plan. For instance, there is a cost associated with continuing the group policy, and you have fewer coverage options. |
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 policy. |