Life Insurance: Laid-Off, Now What?

Life insurance is a safety net that provides financial security for individuals and their families in the event of an untimely death. While employer-sponsored life insurance is a convenient and affordable option, it is important to understand what happens to this coverage when one's employment situation changes, such as in the case of being laid off. Unlike private life insurance policies, which are portable across jobs, employer-provided life insurance is usually tied to one's job and may lapse when employment ends. This guide will explore the options available to individuals facing a layoff and the implications for their life insurance coverage, helping them navigate this complex situation and ensure their loved ones remain protected.

Employer-provided life insurance usually expires when you leave your job

If you have employer-provided life insurance, it usually expires when you leave your job. This is because employer-provided life insurance is typically tied to your job. Therefore, if you leave the company, whether voluntarily or not, your life insurance policy will likely stay behind. This means that if you don't have any backup plan, your safety net will disappear, leaving you without coverage.

However, some employer-sponsored life insurance plans are portable or convertible. Portable means that you can take your policy with you when you leave the company, although you will probably face higher premiums. Convertible policies, on the other hand, allow you to switch your group coverage to an individual plan, such as whole or universal life insurance, but again, expect the premiums to jump.

If your employer-provided life insurance is not portable or convertible, you may still have some options to retain your coverage. Firstly, you can reach out to your human resources department to discuss your options. They may be able to provide you with information about transferring or converting your policy. Additionally, you may be able to work directly with the insurance company to explore your options.

Another option is to purchase a private life insurance policy. This will ensure that you have consistent coverage, no matter how many times you switch jobs. Private life insurance policies are often affordable, and you can buy them at any time, either on your own, through a broker, or through an agent. However, keep in mind that there may be a waiting period of up to four to six weeks for the insurer to approve your coverage, so it's essential to plan ahead.

You may be able to transfer or convert your coverage

If you want to keep your life insurance policy after losing your job, you may be able to transfer or convert your coverage. However, this is dependent on the type of policy you have, and not all group life plans offer this option. Check with your HR department or benefits specialist to determine what options are available to you under your plan's contract.

If your policy is portable, you can keep your coverage by paying the premiums directly to the insurance company. This is known as "porting" your coverage. You will need to take action within 30 to 60 days of leaving your job, and you will be responsible for the full premium. Porting your policy allows you to keep the same coverage with minimal changes, and you won't have to take a medical exam or meet other health requirements. However, you may end up paying more in premiums, and some policies will need to be renewed annually with slightly higher premiums.

In some cases, you may also have the option to convert your group term life insurance into an individual, whole life insurance policy. This will allow you to keep the same amount of coverage, and whole life insurance policies do not expire. However, permanent life insurance is significantly more expensive than term life insurance, so you will pay higher premiums for the same coverage.

You can buy a private life insurance policy at any time

If you have life insurance through your employer, it will typically lapse when you leave your job. However, you can buy a private life insurance policy at any time—on your own, through a broker, or through an agent. Once the insurance company of your choice approves you for coverage, you’ll be able to keep your policy no matter how many times you switch jobs.

There are several benefits to buying a private life insurance policy. Firstly, you won't have to worry about losing coverage when you change employers in the future. Your private policy will last as long as you keep paying your premiums or through the length of the term. Secondly, private life insurance is often more affordable than porting or converting your work coverage, although this ultimately depends on your health profile. A 30-year-old in good health could pay as little as $26 per month for a 20-year term life insurance policy with a $500,000 payout.

To buy a private life insurance policy, you can connect with a licensed agent or broker, who can help you compare options from multiple insurers to find the best policy for you. They can guide you through the application process, which includes filling out an application with your health and financial details, and taking a medical exam or completing a health questionnaire over the phone. After you send in your application and health information, the insurer will review your profile. Once you're approved, you can sign your policy documents and pay your first premium to activate your coverage.

It's important to note that there is usually a waiting period of up to four to six weeks for an insurer to approve you for coverage, so you might experience a coverage gap if you wait to apply until after your employer's policy expires. Therefore, it's helpful to have a plan in place before you leave your job.

You can keep your policy and convert your group policy to an individual policy

If you have a group life insurance policy through your employer, it will typically lapse when you leave your job. However, you may be able to keep your policy and convert your group policy into an individual policy.

Group life insurance is usually tied to your job, which means if you leave the company, your life insurance policy will likely stay behind. This can be a concern if you have loved ones relying on you, as 26% of Americans rely solely on group life insurance without any backup plan.

However, some employer-sponsored life insurance plans are convertible. This means that you can switch your group coverage to an individual plan, such as whole or universal life insurance. While you will be able to keep your coverage, you can expect the premiums to increase.

When you convert your group policy to an individual policy, you will be responsible for paying the entire premium out of pocket. This is because employer-provided group life insurance is often subsidised by the employer, who pays part or all of the policy's premium. By converting to an individual policy, you will no longer be part of the company's group plan, and your former employer won't be required to contribute to your coverage.

It's important to note that not all group life plans offer the option to convert coverage. Check with your HR department or benefits specialist to determine what options are available to you under your plan's contract.

By converting your group policy to an individual policy, you can ensure that your coverage follows you, keeping your loved ones protected even as you move on to a new company or job.

You may pay more in premiums if you port your life insurance policy

If you're laid off, the life insurance policy you bought through your employer will typically lapse. However, some employer-sponsored life insurance plans are portable, meaning you can take your policy with you when you leave the company. While porting your policy allows you to retain the same coverage, it often comes at a higher cost. Here are some key points to consider regarding the potential increase in premiums when porting your life insurance policy:

Higher Premiums

When you port your life insurance policy, you may face higher premiums than what you were paying while employed. This increase in cost is because you are now responsible for paying the premiums directly to the insurance company instead of having your employer subsidize them. The difference in cost can be significant, so it is essential to review the terms of your policy and understand the potential financial implications.

Annual Renewal

Some portable life insurance policies become annual renewable term life insurance. This means that you will need to renew your policy each year, and the premium will increase slightly with each renewal. While this option allows you to maintain coverage, it comes with the drawback of potentially increasing costs over time.

Health Requirements

Although porting your life insurance policy typically doesn't require you to undergo a medical exam or meet other health requirements, your health status can still impact your premiums. If your health has deteriorated since you initially obtained the policy, the insurance company may consider you a higher risk and, consequently, charge higher premiums.

Alternative Options

If you are concerned about the potential increase in premiums when porting your life insurance policy, there are alternative options to consider. You may choose to convert your group coverage into an individual whole life insurance policy, which offers permanent coverage. Alternatively, you can buy your own private life insurance policy, which often turns out to be more affordable than porting your work coverage.

Frequently asked questions