Group Life Insurance After Leaving Your Job

programmer looking out window | group life

If your employer offers life insurance through a group policy, signing up may seem like a no-brainer. Group life insurance has its pros and cons.

It’s great because every employee is guaranteed a basic amount of term life coverage, but a big downside is that you can’t take it with you when you leave your job. Whether you’re moving on to a better opportunity, have been laid off, or need to take some time off from the workforce completely, we’ll go through everything you need to know about how and why you may want to consider your own individual life insurance in addition to your employer group policy.

But first, let’s get clear on the basics.

Group Life Insurance Explained

Group life insurance is one of the employer perks you might want to take advantage of.

If available through your job, you’ll get term life insurance that they either they pay for in full or pay for a portion of your premium. If you do have to pay anything for coverage, it’s usually pretty cheap and will come directly out of your paycheck.

In return, you get basic coverage often between $25,000 and $50,000. Most group life insurance policies offer coverage equivalent to at least one years’ salary. The amount goes to the beneficiary of your choice tax-free.

Sometimes, employers allow workers to purchase supplemental group life insurance for up to three to four times their annual salary. The higher coverage amount may result in providing evidence of insurability by submitting a health questionnaire along with medical tests.

Pros and Cons of Getting Life Insurance Through Your Workplace

Clearly, group life insurance sounds like a pretty good deal if your employer offers it. That said, there are some core pros and cons to consider as it’s ultimately not always the best option for some people.

Benefits:

  • Insurance is either free or very affordable.
  • All employees are guaranteed basic coverage
  • Premiums can get deducted straight from your paycheck (so you don’t have to worry about budgeting for monthly payments).
  • Supplemental coverage through your employer may be available for an affordable price.
  • Group coverage is better than nothing. Having $30,000 of life insurance is better than $0.

Drawbacks:

  • The coverage amount is likely too low. One years’ salary may not be enough for your beneficiaries to cover their financial needs and other debts.
  • There are limited policy options through your employer so you won’t be able to shop around effectively.
  • Your spouse may not be covered.
  • You can’t take the insurance with you when you leave the employer.

How Soon Do You Lose Coverage After Leaving Your Job?

Let’s discuss one of the biggest drawbacks of group life insurance which is the fact that you will very likely lose coverage when you leave your job. These days, staying at one job until you retire is pretty unlikely. The average person switches employers 11 times during their working career and 64% of the working population favors job hopping. Given this information, you’re more likely to experience navigating through the process of obtaining life insurance after a job loss.

Once you leave your employer, you can basically expect to kiss that group life insurance policy goodbye —- the free or low-cost option anyway. Your employer may cancel the policy or simply stop paying for it and you’ll need to take over premium payments to keep it from lapsing.

The only way you can keep most of the benefits of the group life insurance policy is if you transfer it to your new employer who offers group life insurance through the same exact company as your previous employer. The chances of that are very slim.

According to the COBRA law which was enacted in 1986, employers are required to make group health available to laid-off or voluntarily terminated employees for at least 18 months following their termination date. In some cases, life insurance benefits may be included in COBRA benefits if it is part of your employer group health plan. But if your employer provided separate life insurance benefits (that were not included in a group health plan), COBRA will not cover the plan premium for the duration.

In order to receive COBRA benefits, you need to elect to use them within 60 of leaving your job. If you miss the deadline, you won’t be eligible. Even with COBRA benefits, you’ll still be expected to pay the full cost of your life insurance coverage.

Should You Get Individual Coverage?

Even if you have a group life insurance policy through your current employer, you’ll still want to consider getting individual coverage for a number of reasons.

Some employers require you to be on the job for a certain number of days to receive benefits like life insurance. Or, you may have only a few days to opt-in before being unable to receive benefits for an entire year. With your own policy, you don’t have to worry about these limitations.

If you expect to job hop at all, you won’t need to count on getting a new group life policy each time you switch jobs. Plus, who’s to say your new employer will even offer group life insurance? It’s too risky to be uninsured or underinsured especially when an individual term policy can be affordable. That’s a risk you don’t need to take.

It’s also wise to supplement group life insurance with your own policy so you can get a higher coverage amount. Depending on your number of dependents, debt load, and income range, you may need much more coverage than your employer’s life insurance policy can provide. Unlike group life insurance, you can purchase more coverage without having to get a medical exam in some cases.

Having your own policy also allows you to lock in a lower monthly premium for a longer term. Life insurance is often cheaper when you’re younger and healthy. If you know you might leave  your job in a year or even 5 years, you’d have start all over again with life insurance, and you’d be older so likely have a higher rate.

Luckily, more coverage doesn’t have to cost an arm and a leg with individual term insurance. You can also enjoy the freedom of shopping around for the better rates and not be limited to the companies and options your employer wants to work with. Once you leave your job, you’ll get a much better deal by getting your own life insurance instead of continuing to pay full price for the low-coverage group life policy you had — if that’s even an option.

Continuing Life Insurance After Leaving Your Job

If you’ve recently left a job and were wondering ‘Should I keep my group life policy?’ it’s probably more work than it’s worth. Plus, keeping your employer’s group life insurance may not even be an option once you’ve left the company.

On the bright side, you can find much better coverage options and at an affordable price with an individual term life policy. With this option, you’ll have more control regarding what your coverage amount is, how much premiums are, and how long your term is. The best part is that coverage won’t be affected when you switch employers so feel free to job hop and dip in and out of the workforce to your heart’s content.

Get started today and have coverage in a few easy steps