Switching From Group Insurance To Whole Life: What's Involved?

Group life insurance is a benefit often provided by employers to their workers. It is a single contract for life insurance coverage that extends to a group of people. While it is a great benefit, it is usually basic coverage and may not meet the needs of all policyholders. This is where whole life insurance comes in. Whole life insurance is permanent, has higher premiums and death benefits, and is the most popular type of life insurance. It is possible to convert group life insurance to whole life insurance. This process is known as a conversion privilege, which allows employees to convert their group life insurance policy to an individual life insurance policy.

Conversion privilege

In the context of group insurance, a conversion privilege allows an employee to convert their group plan into an individual life insurance policy with ease. This means that if an employee leaves their job, they can continue their coverage under an individual policy without going through another approval process or medical exam. The insurance company will extend coverage based on the fact that the individual was already approved as part of the group plan.

To qualify for this provision, the insured typically needs to notify the life insurance company within 31 days of termination of employment with the group policyholder. If this deadline is missed, the individual will have to go through a new approval process, which may include a medical examination.

It is important to note that the conversion privilege may have an expiration date, and the premium can increase based on the age of the policyholder at the time of conversion. Prospective policyholders should carefully review the terms of the provision and consider their health and life insurance needs when deciding whether to convert their policy.

Coverage after leaving a job

If you have a group life insurance policy, you are in good company. According to the American Council of Life Insurers, in 2017, group insurance represented 46% of all life insurance policies. Group life insurance is usually offered by employers to their workers, and it can be a great benefit to provide financial protection to your loved ones if you die.

However, since group life insurance is typically offered to a group of employees, you may be wondering if you can keep your coverage if you leave your job. The answer depends on whether your coverage has a conversion privilege or is portable.

Conversion privilege

The conversion privilege provision allows an employee under a group plan to convert their plan to an individual life insurance policy. This means that if you leave your job, you can keep your life insurance coverage by converting it to an individual policy. This option is especially useful for those who are otherwise uninsurable, as a medical exam is not required for the conversion. It is important to note that to qualify for this provision, you need to notify the life insurance company within 31 days of termination of employment with the group policyholder. After 31 days, you will have to go through a new approval process and may need a medical exam.

Portable coverage

If you have voluntary group life insurance, meaning you chose to pay premiums for it, your coverage may be portable. This means that you can continue your coverage after you leave your company as long as you pay the premiums to the insurance company.

Other options

If you lose your job-based health insurance, you have a few other options to consider:

• Enroll in a plan through the Health Insurance Marketplace. You will qualify for a Special Enrollment Period to get coverage for the rest of the year, but you need to apply within 60 days of losing your job-based coverage.
• Sign up for COBRA coverage. This allows you to stay on your job-based health insurance for a limited time after your job ends (usually 18 months to 3 years), but you will have to pay the full premium yourself, plus a small administrative fee.
• Depending on your age, income, and other factors, you may be eligible for an Affordable Care Act plan, Medicaid, or Medicare, or you may be able to join a relative's health plan.

It is important to plan ahead and explore your insurance options before you leave your job to avoid a gap in coverage and potential high out-of-pocket costs for healthcare.

Group vs individual policies

Group life insurance is a benefit offered by employers or large-scale entities to their workers or members. It is a single contract for life insurance coverage that extends to a group of people. Group life insurance is typically term life insurance, which is cheaper and provides coverage for a specific period. The coverage amount is often capped at low amounts, such as one to two times the insured's annual salary.

On the other hand, individual life insurance is purchased by an individual for themselves. It offers customised coverage tailored to the individual's specific needs, age, health, and lifestyle habits. The policyholder can select the coverage amount and duration and can also add optional riders for enhanced protection.

Group Life Insurance

Group life insurance is generally inexpensive and may even be free for employees since the cost is shared among the group members. It is easy to qualify for, as it does not require a medical examination or underwriting. This type of insurance is ideal for those who may have health issues that would make it difficult to obtain an affordable individual policy.

However, the main drawback of group life insurance is that it usually offers only basic coverage, which may not fulfil the needs of policyholders. The coverage amount is typically low, with typical amounts being $20,000, $50,000, or one to two times the insured's annual salary. Additionally, the employer controls the policy, which means premiums can increase based on their decisions. If an individual leaves the organisation or the organisation terminates the group policy, the coverage usually ends.

Individual Life Insurance

Individual life insurance policies offer greater flexibility, allowing individuals to customise the coverage amount, premium payment frequency, and duration of the policy. These policies are portable, meaning they can be continued even if the individual changes jobs or switches employers. Individual life insurance policies also usually have higher sums assured than group life insurance policies.

However, the main disadvantage of individual life insurance is that it is generally more expensive than group life insurance due to the customised coverage. The premiums are based on the individual's age, health, and lifestyle habits, which can result in higher costs. Additionally, individual policies require underwriting, which includes a medical examination and disclosure of medical history.

Conversion from Group to Individual Policy

It is important to note that some group life insurance policies offer a conversion privilege, which allows employees to convert their group policy to an individual policy upon leaving their job. This option provides continuity of coverage, especially for those who may have health issues that would make obtaining an individual policy difficult. However, the premiums for the individual policy will likely be higher.

Whole life insurance

Group life insurance is offered by an employer or another large-scale entity, such as an association or labour organisation, to its workers or members. It is typically term life insurance, which is only designed to last a certain length of time, and is often renewable each year. Group life insurance is generally inexpensive and may even be free for certain employees. It usually has a relatively low coverage amount and does not require members to submit to a medical examination.

It is possible to convert group life insurance to individual coverage. This is known as a conversion privilege, which allows employees to convert their group life insurance policy into an individual life insurance policy without an additional approval process or medical exam. This is particularly beneficial for employees with medical conditions who would otherwise find it difficult to secure coverage. Conversion privileges are especially relevant for employees who have been terminated, retired, or have moved to a different company, as it allows them to maintain their life insurance coverage.

To convert group life insurance to whole life insurance, follow these steps:

• Check that your conversion option has not expired.
• Contact the insurance company to determine what permanent life insurance products are available for conversion.
• Choose how much of your term coverage you want to convert.
• Complete the conversion application form and submit it to the carrier.

Cost of conversion

The cost of converting from group insurance to whole life insurance depends on several factors, including the type of policy, age, and health status. Here is an overview of the costs associated with the conversion:

Conversion privilege is a feature that allows employees under a group plan to convert their group life insurance policy into an individual policy without undergoing an additional approval process or medical examination. This provision guarantees coverage and set premium payments for a certain period, regardless of the insured's health condition. While conversion privilege makes the transition convenient, it comes at the cost of higher premiums for the new individual policy. The premium rates for the converted policy are typically age-based and higher than the group rates. For example, a healthy 30-year-old male with a $500,000 25-year term life insurance policy costing $25 per month might decide to convert $100,000 to a whole life insurance policy at age 50. The new whole life policy could cost around $118 per month, a significant increase in premiums.

Portability Options

Portability options allow you to take your group coverage with you when you change jobs or retire. These options are typically available for voluntary or optional employee and dependent term life coverage. The rates for portable policies are generally lower than converting to an individual whole life policy, but they still increase as the insured person ages. The portability option provides term life coverage separate from the employer's group contract, and the terms and conditions may vary based on the employer's plan design. It is important to note that portability options usually have a time limit, such as 31 days from the date of termination of group life coverage, after which a new approval process and medical examination may be required.

Additional Costs to Consider

When converting from group insurance to whole life insurance, it is important to consider the potential costs associated with the new policy. Whole life insurance is a type of permanent coverage that lasts a lifetime. One of the unique features of whole life insurance is the cash value account that accumulates at a guaranteed interest rate. This cash value component is one of the reasons why whole life insurance is far more expensive than term life insurance. Additionally, whole life insurance policies often have fixed premiums that start low but increase in five-year increments. These higher premiums are a trade-off for the guarantee of coverage for life and the accumulation of cash value.

Frequently asked questions