Continuing Life Insurance After Leaving Job

If you've finally made it to retirement or maybe just decided to leave your job to pursue

other ventures, you may find yourself wondering what happens to the Life Insurance benefit you had while with your employer.

Most likely, the life insurance offered through your job was supplied by a major life insurance company (think MetLife, Colonial Penn, Prudential, etc.). Often the employer gives you a certain amount of life insurance as a basic benefit, sometimes called "Basic" life insurance. Additionally, you may have been offered the ability to purchase more insurance on top of your Basic amount in the form of "Optional" or "Supplemental" insurance. Plus there are often considerations for insurance on spouses and dependents.

Should I continue the life insurance I had from my job?

As a part of a large group of employees, you benefited from lower all around life insurance rates while you were working. However, now that your time is done at that employer, you're facing the challenge of finding a new way to have life insurance, this time as an individual.

"But wait," you say. Someone at your company or in your HR department said you should be able to continue your company life insurance on your own after you've stopped working there. The cost of the insurance would just be paid directly by yourself. In most cases, that is true, but oftentimes it is a bit misunderstood.

When it comes to "keeping" your company life insurance after you've left the job, you've got about three options: Conversion, Portability, and Applying for New Coverage.

Conversion: The "No Questions Asked" Option

The first way of keeping life insurance from a job is through Conversion. Conversion is the process of moving from a Term Life Insurance Policy to a Permanent (or Whole Life) Policy. In the case of a conversion from a job's term policy (the majority of employer life insurance is considered term) employees are given the privilege of converting to a policy without the need to do any medical exams or answer any medical questions.

While that sounds like a great thing, in many cases it is not the best choice. Why? The reason is actually pretty simple. If someone is not going to inform the insurance company about their current medical condition, the insurer cannot make an appropriate offer on the cost of that coverage. Therefore the insurer will just assume that the person applying is in poor health and charge an extraordinarily high amount appropriate for that assumption.

So the main thing one should ask when considering a conversion of company term life insurance is "Am I healthy enough to qualify for a better offer than this conversion?"

The answer will help determine if converting is actually worth doing or not. In addition, many people considering conversion do not take into account the fact that they are converting from a term policy (from the job) to a permanent policy. Whether talking about a current health condition or not, permanent policies are always much more expensive than a term policy. Most who overlook that fact are quite surprised to hear that the cost of their life insurance could increase so drastically after leaving work.

Portability - Continuing your employer's term life insurance

In some cases, employers will offer something called Portability. It could also be referred to as a "continuation" of the life insurance from work. In this option, the person leaving their job is offered the ability to continue with their coverage on a term basis, usually in one or five year increments. At the end of that new term, the policy would automatically renew and the rates paid for the coverage would increase in accordance with the new age of the person. Essentially it is an ever increasing policy that eventually has an end date, typically when the person turns a certain age like 79. And, in some cases a portability option will include a schedule where the amount of life insurance coverage decreases at certain ages.

Portability is generally a viable option in cases where a person leaving their job just wants to ensure they have life insurance coverage for a short time before getting new coverage through a new job.

Rates for portability are determined through answering a few medical questions in an application. Based on the answers to those questions, the insurance company will designate a set of rates for preferred health conditions and non preferred health conditions. Of course the preferred rates are lower than the non preferred, but either way there is no chance of a complete denial of coverage.

In this option, the main question one should ask themselves is: "Am I looking for life insurance on a longer term basis? If so, why would I elect a policy that increases on me every year or every five years when I can just as easily answer medical questions for a policy that locks in my rate?"

Applying for New Coverage

The third option when leaving an employer life insurance policy is to simply go out and find an individual policy for the future just like anyone else looking to purchase life insurance for themselves.

Based on the insurance needs a medical exam may be required or perhaps something as simple as a few questions to answer on an application.

Most people, if still in relatively good health, will find that this option is best suited for their needs. New coverage will offer rates designated specifically for their health condition and locked in for life or for a certain period of time (depending on the type of policy).

This option also allows a person to shop for the most appropriate policy and insurance company rather than being held captive by a single company and option.

If you are struggling with what to do about the life insurance you have from a job or career, we suggest you chat with a financial professional with experience helping people get through the transition of a job change or retirement. We recommend speaking with one who has access to a number of different insurance companies as that is the most common option people will consider after hearing all of the facts.

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Source: https://www.stansfieldhealthandlife.com/post/3-ways-to-continue-life-insurance-after-job-ends

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