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If your employer offers life insurance as a fringe benefit, it’s generally in the form of a group policy. Employees who already have this type of life insurance policy understand how beneficial it can be. You can access a reasonable amount of coverage at a steeply discounted rate since the policy is subsidized by your employer. Plus, you usually won’t have to worry about a medical exam or medical underwriting. But there’s a significant downside — if you leave your job, the policy stays behind and you’ll need to get a new life insurance policy elsewhere.
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Whole life insurance combines life insurance with an investment component.
- Coverage for life
- Tax-deferred savings benefit if premiums are paid
- 3 variations of permanent insurance: whole life, universal life and variable life include investment component
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
- Fixed premium over term
- No savings benefits
- Outliving policy or policy cancellation results in no money back
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What happens to life insurance when you leave a job?
Although you lose your group life insurance when you leave your job, the longer answer is a bit more complicated. When these types of policies are offered as employment benefits, the policy itself is held by the employer, and the designated group of people who can be insured under the policy are the employees.
This arrangement means that the only people who are eligible for that group plan are those currently employed by the entity that took out the policy. As a result, employer life insurance after termination typically isn’t an option.
However, there are some workarounds. Changing jobs is an increasingly common part of 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 whether you can take your policy with you. If not, you can cancel your policy or let it lapse. Here’s what you need to know.
- You can cancel the policy or simply let it lapse: Most group life insurance coverage terminates the month after you leave your job. You won’t have to alert the insurance provider since the countdown automatically begins on the last day of your employment. That said, you want to start making arrangements to secure coverage during this period to ensure you’re protected when the old policy ends. It should have an effective date on or shortly before the group policy lapses.
- You can inquire about whether the policy is portable: In most cases, employer-offered group life insurance is not portable—meaning that coverage will not go with you when you change jobs. However, if you are able to port your group policy to an individual term life policy, rates will likely be higher than your original premium.
- You can convert your group policy into an individual one: You might also be able to convert your group life insurance coverage to an individual whole life policy if you leave your job. But this option will also come with a higher rate because conversion premiums tend to be more expensive than premiums for group policies.
Should you get life insurance through your job?
Getting life insurance through work has some advantages and disadvantages. Here are a few pros and cons you should factor into 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. |
Frequently asked questions
There is not one life insurance company that’s the best option for every policyholder. Because needs and wants vary, as do the goals for your life insurance policy, the best life insurance company will be different for everyone. If you’re trying to find the best option for you, it may benefit you to speak with a licensed insurance agent about your coverage needs. After you narrow down the policy options to the ones that fit you best, it may be helpful to get quotes and compare prices from multiple life insurance providers.
There are many life insurance options available to you and it may help to discuss them with a licensed insurance agent. An individual policy may offer more affordable rates and a wider range of policy options, like accelerated death benefits and disability waivers. Comparison shopping for competitive life insurance quotes among the best life insurance companies may help you find the best coverage for you.
Whether or not you need life insurance depends on your individual financial goals. Many people use life insurance to ensure their loved ones — often young children or a spouse — are taken care of after they pass away. However, if you are single and don’t want to leave money to your family, a charity, a church or your business, life insurance may not be for you.
