A big part of life insurance education is teaching the public the difference between group life insurance through your employer and a private life insurance policy.
Having life insurance through your job can be a huge perk that not many people get, but your policy is handcuffed to your job.
What happens to your life insurance if you lose your job? Your life insurance can be taken with you if you lose your job. However, you will need to pay for the full cost of your policy without any employer subsidy. You also will have a limited portability window to port your life insurance if you lose your job.
Many people opt to get life insurance through their employers because they assume that it is more affordable.
However, this is not always the case.
In fact, the best life insurance companies can often beat group coverage over time without the risk of losing your coverage.
Use our free rate comparison tool to compare the rates of over 30 highly-rated life insurance companies against your employer’s life insurance plan.
Our article will explain to you what happens to your coverage if you lose your job, and what your best options are at that point.
Feel free to skip ahead to any section you like using our links below.
What Happens to Your Life Insurance After You Lose Your Job
When you lose your job, you need to decide if you want to maintain your work-provided life insurance policy, usually within a few weeks of termination.
Life insurance you buy through your employer is called group life insurance.
Every employer plan is different, but most plans follow the same format.
You will get a letter in the mail informing you of any portability options that are built-in to your work plan.
Portability options are industry jargon for pay for your life insurance privately instead of through your employer.
The letter you receive will outline the timeline you have to port your group life insurance into a privately paid plan.
The letter should also provide you with contact information for a representative of the life insurance company that underwrites your work plan.
Group life insurance is different than a private life insurance policy that is sold and managed by agents or brokers.
Most insurance companies will have specific departments that handle group plans.
For example, a Prudential Life Insurance agent may be unable to service your group life insurance policy even if Prudential runs your employer plan.
Once you get connected with the correct department, the representative can explain how your policy works and give you the policy’s rates.
Now, portability options sound great, but you’ll be surprised to learn that few people use them in practice.
Is Porting Your Life Insurance the Best Option?
There are a few reasons why people do not use their portability options more often.
One reason is that you have a tiny window to invoke the option in the first place, usually two weeks from the receipt of the letter detailing your portability options.
Two weeks is a very short window during a very turbulent time in a person’s life.
For many people, porting their group life insurance is at the bottom of their priority list if they leave work.
If you miss your window to port your group policy, you will be forced to get coverage on the open market.
Additionally, the cost of porting your group policy is often prohibitive.
The last thing that anyone wants when they lose their income is to add more bills to their expenses.
Your group life insurance policy is usually subsidized partly by your employer, but you must pay the full cost of the policy when you port the policy.
Sadly, many people drop the coverage because the cost is too high during a period of financial uncertainty.
Additionally, it may be more affordable for you to purchase life insurance privately if you are in excellent or even fair health.
Group life insurance typically has little or no medical underwriting.
Therefore, you pay higher rates for group life insurance, and the cost usually increases as you get older.
If you are in excellent health, you can typically find a more affordable private life insurance policy without the hassle of a medical exam.
The best no-exam life insurance companies can cover you faster than it would take you to port your work option.
No-exam coverage may make sense for you, especially if you want mortgage protection life insurance to pay off your home when you die.
Private life insurance policies are usually level premiums that are locked in for a set period, unlike group policies that increase in cost significantly as you get older.
When Does Porting Your Coverage Make Sense?
While there are certainly disadvantages to porting your life insurance, there are some reasons why you would want to take your group coverage with you.
The most significant reason to port your life insurance coverage with you is that you are uninsurable in the private market.
While porting your life insurance coverage is usually a bad deal for healthy people, it might be your only way to get life insurance with a pre-existing condition.
Another reason porting your life insurance may make sense is if you don’t want or have the time to reapply for life insurance.
While no-exam underwriting has made getting life insurance much more accessible, not everyone qualifies.
If you don’t want to take the exam or wait another six to eight weeks to get covered, paying a premium to port your work life insurance policy may be the best way to protect your loved ones.
Final Thoughts on What Happens to Life Insurance if You Lose Your Job
Losing your job is never easy, and the last thing you want to worry about is your life insurance.
Once you’re separated from your work, you will receive a letter in the mail outlining all your benefit options, a timeline for transfers, and contact information to a benefits representative.
The benefits representative for your group life insurance will provide you with the cost of porting your group life insurance policy with you, and give you the necessary forms to complete.
If you are in good or excellent health, you should compare the cost of your portability option with private life insurance.
You can use our free rate comparison tool to view how affordable term life insurance is on the private market.
Often it makes more sense to buy a private policy due to the lower cost.
However, if you are uninsurable, then porting your work life insurance coverage may make more sense for you.
You can reach out to a high-risk life insurance broker to go over if buying private life insurance is the best option for you.