In most circumstances, quitting your job means leaving behind your employee benefits. But if your policy allows it, you may be able to take your life insurance benefits with you, either through porting your group term life insurance into an individual policy or converting it to a permanent policy.
Features of life insurance portability vs. conversion
Understanding what each option has to offer can help you make the best decision for you.
|Type||Term life insurance only||Whole or Universal life insurance|
|What you’ll pay||The full cost of your term policy||A higher premium that covers both the death benefit and accumulates cash value|
|Medical exam required?||No||No|
|Age limits||Most term coverage cuts off at age 70||Must convert by age 65-70, depending on the policy|
|Time limit||31 days||31 days|
What is life insurance portability?
If your employee term life insurance has a portability clause, you can shift your group policy to an individual policy, as long as you’re willing to pay the premium.
How does life insurance portability work?
If you’re preparing to leave your position with the company, contact your HR representative to ask about porting your term life insurance. Some insurers provide portability kits to walk you through the process, but if yours doesn’t, your HR rep should have contact information so you can start the process. You typically have 31 days from when your employer stops paying for your group coverage to port the policy to an individual policy.
If your group policy has special riders attached, those may not be available in an individual policy, but you may be able to add additional riders or change your coverage amounts, depending on the portability terms in your policy. Often you can choose what percentage of your current group policy coverage you’d like to continue. For example, you can choose to port 80% of your coverage amount into an individual policy.
Once you’ve ported the policy, you’ll be responsible to pay the monthly premiums directly to the insurer.
What is life insurance conversion?
The conversion clause in your term life insurance allows you to convert your term policy to a whole or universal life insurance policy. This choice comes with a higher premium, but offers a permanent policy that grows cash value over time.
How does life insurance conversion work?
Typically, you’ll have 31 days from when your employer stops paying for your group coverage to convert your policy. Either get a conversion kit from your HR department, or a contact number to speak with the insurance company directly.
Because converting the policy is changing the policy entirely, you should have the option to choose from all of the company’s available riders and to increase or decrease the amount of your coverage. But the cost of whole life coverage is significantly more than term life, so keep in mind that your premium will increase with every option you add.
How do I compare life insurance portability and conversion?
Choosing portability and conversion is more about whether you want to keep your term life insurance coverage or have a whole life policy.
- Term life insurance. This temporary life insurance allows you to have coverage for a set period of time when the loss of your income would hit your family the hardest, like when your children are young or in college. It pays a lump sum death benefit to your beneficiaries when you die, and is less expensive than permanent life insurance.
- Whole life insurance. This policy is permanent, providing coverage for your entire life as long as you continue to pay the premiums. Whole life is more expensive, because you are paying both the death benefit premium and a premium for the accumulating cash value of your policy. But that cash value allows you to take our loans against your policy as an asset, or even surrender the policy for its cash value before you die.
How to choose between portability and conversion
Your policy may not offer both options, but if it does, consider the following when choosing between the two.
|Life insurance term||Consider this if you…|
Compare life insurance policies
Regardless of which you choose, portability and conversion can be a great way to continue life insurance coverage without having to go through medical exams or a long underwriting process. But tying yourself to one insurance company also means taking the deal they offer you. Taking the time to shop around for a life insurance policy could help you find a better deal on the coverage you want.
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