Life Insurance After Retirement: Keeping Your Policy Post-Job

Life insurance is a tricky topic, and it's natural to wonder what happens to your policy when you retire. In general, people tend to be underinsured early in life and overinsured later in life. While life insurance is a commonly used tool to protect against potential income and other losses, it's essential to understand the different types and their implications. For example, term life insurance offers coverage for a set period, usually 10 to 30 years, while whole life insurance is a type of permanent insurance without an expiration date as long as premiums are paid. When it comes to employer-sponsored life insurance, it often provides low-cost supplemental protection for dependents. However, if you leave your job or switch employers, you might lose this coverage unless you take specific steps.

Group life insurance benefits vary between plans

The type of policy you have will determine your options for retaining it. In many cases, you'll only be able to cancel the policy or convert it to an individual life insurance policy, which will result in higher premiums. Some plans may allow you to port your policy to another group plan if your new employer uses the same insurance company. However, this is not a given, and it's important to check with your HR department or benefits specialist to understand the specifics of your plan.

Group life insurance plans also differ in the amount of coverage they provide. Basic group life insurance typically covers a set amount, such as one to two times your annual salary, which may not be sufficient for your needs. Many employers also offer supplemental or voluntary group life insurance, which allows employees to purchase additional coverage, sometimes up to five times their annual salary. However, these rates are not fixed and usually increase every five years. Additionally, if you're in good health, individual coverage may be cheaper.

Overall, while group life insurance can be a valuable benefit, it's important to recognize its limitations. It often provides basic coverage that may not meet your long-term financial security needs, and it's not portable, meaning it doesn't follow you through career changes. As such, it's recommended to have additional life insurance independent of your employer-sponsored policy to ensure continuous coverage.

You can keep your existing basic life insurance coverage if you meet certain conditions

If you're wondering whether you can keep your life insurance from your job when you retire, the answer is: it depends. Life insurance through the workplace is typically offered through a company's group life plan, and while plans differ, these benefits are often offered to all employees with the employer paying part or all of the policy's premium. This means that if you leave your job, you are no longer part of the company's group plan and your former employer is not required to pay for your coverage.

However, there are a few conditions under which you may be able to keep your existing basic life insurance coverage from your job when you retire. Here are the key conditions to meet:

• You must be enrolled in basic life insurance under the Federal Employees' Group Life Insurance (FEGLI) program when you retire.
• You must not have converted your life insurance coverage to an individual policy.
• You must have had life insurance coverage for the 5 years immediately preceding retirement or for the full periods of federal service when coverage was available (if the coverage was for less than 5 years).
• Your annuity payments must start within 30 days.

Additionally, if you are retiring under the Minimum Retirement Age (MRA) plus 10 provision of FERS, your health care and life insurance coverage will be suspended until your annuity starts, even if it is postponed.

It's important to note that even if you meet these conditions, there may be other factors that come into play when determining whether you can keep your life insurance coverage from your job in retirement. For example, some employer-sponsored life insurance plans are portable or convertible, which means you may be able to take your policy with you when you leave the company or convert it to an individual plan, but the premiums may increase.

To fully understand your options, it's recommended to speak with a human resources representative or benefits specialist at your company, as well as consult with a financial planner or insurance professional.

You can cancel or decrease your coverage at any time

If you have life insurance through your employer, you may be able to keep it when you retire, but this depends on the type of policy you have. In many cases, you will only be able to keep your coverage if you continue to pay the premiums yourself.

If you have a group life insurance policy through your employer, this will typically be tied to your job. This means that if you leave the company, your life insurance policy will likely stay behind. However, some employer-sponsored life insurance plans are portable or convertible. Portable policies can be taken with you when you leave the company, although premiums may increase. Convertible policies allow you to switch your group coverage to an individual plan, but again, you may face higher premiums.

If you are unable to port your coverage, you may be able to convert your group policy to an individual policy if your plan allows. However, you will be responsible for paying the entire premium out of pocket.

If you are unable to keep your life insurance coverage after retiring, you will need to apply for new coverage based on your current age and health status. This may be difficult or impossible if you have certain health conditions. For this reason, it is often a good idea to carry additional life insurance independently of what you have through your employer.

Regardless of the type of life insurance policy you have, you can cancel or decrease your coverage at any time. However, you cannot increase your coverage after you retire. Any reduction or cancellation of coverage after retirement is permanent.

You can convert your group policy to an individual policy

If you have a life insurance policy through your employer, it's likely to be a group life plan. This type of policy is often affordable and easy to qualify for, but it usually stays with your employer if you leave your job—whether voluntarily or not. So, if you're planning to retire, it's important to understand what will happen to your life insurance coverage.

One option to consider is converting your group policy to an individual policy. This means that instead of losing your coverage when you retire, you can continue to be insured under the same policy, but as an individual rather than as part of a group plan. However, there are a few things to keep in mind. First, not all group life plans offer the option to convert coverage. Check with your HR department or benefits specialist to find out if this is possible under your plan. Second, when you convert to an individual policy, you will be responsible for paying the entire premium out of pocket, which may be higher than what you were paying before.

Converting your group policy to an individual policy can be a good option if you want to maintain your life insurance coverage after retiring. It allows you to keep the same policy and avoid having to apply for new coverage, which can be difficult if your health has changed. However, it's important to weigh the increased cost against your financial situation and needs.

In addition to converting your group policy, you may also want to consider purchasing a separate individual policy before you retire. This can provide additional coverage and ensure that you have life insurance regardless of where you work or what happens to your group policy.

Employer-sponsored life insurance should not be relied upon solely

While employer-sponsored life insurance can be a great benefit, it should not be relied upon solely. Here are some reasons why:

Insufficient Coverage

Employer-sponsored life insurance policies often provide coverage for a limited amount, typically one to two times your annual salary. This may not be sufficient, especially if you have dependents or significant financial obligations. It's important to evaluate your financial needs and ensure that you have adequate coverage.

Not Portable

Employer-sponsored life insurance is usually tied to your job, meaning that if you leave the company, voluntarily or involuntarily, your life insurance policy will likely not continue. This can leave you and your loved ones unprotected. In contrast, a privately owned life insurance policy is portable and can be customised to your needs, providing coverage regardless of your career changes.

Limited Customisation

Group life insurance offered by employers often has limited customisation options. It is typically a one-size-fits-all solution, whereas a privately owned policy allows you to choose coverage that fits your specific needs.

Premium Increases

If you are able to convert your group policy to an individual policy upon leaving your job, you will likely face significantly higher premiums. This can be a financial burden, especially if you are retired or have fixed income.

Actively at Work Clause

Many group life insurance policies have an "actively at work" clause, which means that if you are absent from work due to illness or injury, your coverage may be affected. This could leave you without protection during a time when your family may need it the most.

In summary, while employer-sponsored life insurance can be a valuable benefit, it's important to recognise its limitations. To ensure that you and your loved ones have adequate protection, it's advisable to consider supplemental coverage through a privately owned life insurance policy. This provides more flexibility, customisation, and peace of mind, knowing that your coverage continues regardless of your career changes.

Frequently asked questions