Group life insurance is good in terms of saving you some money but it also leads to several complications as well. Many employers offer subsidized life insurance benefits in the form of group life insurance policies. These policies are exactly how the name describes, life insurance policies where the same plan is available for an entire group of employees. Group insurance policies are commonly used by employers as employment benefits, but not always.
Group life insurance from an employer gives employees the option to commit to free or low-cost life insurance. This offers employees considerable coverage but it’s important to know what happens to a group life insurance policy when you leave a job.
The upside of group life insurance is relatively cheap life insurance, while the downside is a rigid policy with little to no room for customization as well as the added difficulty of understanding what happens to the policy once you leave a job. If you have prepared for it or taken the necessary steps, you can lose your life insurance when you leave a job.
What happens to your group life insurance policy when you leave a job?
In simple terms, as the insurance is offered by the employer, when you leave your job you also forfeit your group life insurance policy. When such policies are offered by businesses as employment benefits, the policy itself is under the control of the employer. This means that the eligibility for the group plan is the people who are currently employed by the business that purchased the policy. As a result, employees who leave that business cannot be eligible for that group insurance plan.
However, there are some ways around this. Changing jobs is very common and insurance agencies have made active strides to adapt to such change. Let’s look at a few ways you can avoid losing your life insurance coverage when you leave or change jobs.
How to avoid a lapse in coverage
Basically, there are 3 options when it comes to changing jobs:
Allowing the policy to lapse or cancel the policy
If left unchecked, it will lead to a lapse in coverage on its own. This means that before you cancel your policy, it is a good idea to discuss with an insurance company first and arrange for a new insurance plan to take over as soon as the previous one is canceled.
Porting your previous plan to the group plan of the new employer by speaking to the insurance agency directly.
This is the best option but it is often difficult to carry out as there are several factors that need to be aligned. For this to happen, your new employer will be required to use the same life insurance agency as your previous employer. Or else the chances of being able to port your policy are quite less.
Converting your group insurance policy into an individual policy.
The main obstacle with this option is that converting a group plan into an individual one means that you end up covering for all the premiums at full without the option of looking for better deals or shopping around for better options. This leads to you paying significantly higher premiums for your coverage than you normally would.