It's common to get life insurance through your employer. When you do, your first concern is likely whether the coverage is enough for your needs. But you'll also want to consider what happens if you leave your job. Does your life insurance go with you?
That's where life insurance portability becomes important. Here's what you need to know.
The Basics of Life Insurance Portability
An increasingly common benefit many employers offer today is life insurance. These group term life insurance policies are generally relatively basic; they'll provide coverage (usually one or two times your salary) at an affordable rate. Many employers will cover a portion or all of the premium for these policies as a perk.
But what happens if you change jobs or get laid off or fired? Unfortunately, in most cases, employer-sponsored perks such as health insurance don't travel with you to your new job. However, there may be an exception for life insurance.
When an employer-sponsored term policy is portable, you can take it with you when you leave your job. You'll still have the same coverage, but you'll need to pay your premiums yourself.
Portability shouldn't be confused with converting a life insurance policy. In that case, converting your coverage still enables you to take the policy with you, but you're changing the policy from term coverage to permanent coverage. The are pros and cons to each. For example, a permanent policy will cover you for the rest of your life, but it's also more expensive than term coverage.
How Does Life Insurance Portability Work?
Sometimes, your work benefits or needs change. For example, you may move on to a different company, decide to work part-time (which disqualifies you from benefits) or choose to take advantage of your partner's benefits through their employer.
When these changes happen, you may have the option to port your current term life insurance plan. Typically, you're only allowed to port plans after triggering events such as a divorce or job change. In these cases, you'll usually have a window of opportunity to port your coverage, often 30 to 60 days.
When this happens, you'll get to keep your current term life insurance policy for as long as you continue to pay the premiums during the term, which may be anywhere from 10 to 30 years, depending on your remaining coverage.
The Benefits and Drawbacks of Porting Life Insurance Coverage
Before you decide about porting your coverage, review your options and determine if that's the best option for your needs.
Here are some pros and cons to consider:
- One of the biggest benefits of porting your coverage is you don't need to take a medical exam or fill out a lengthy medical questionnaire to qualify for coverage.
- If you're currently sick or in poor health and worry about not qualifying for coverage, porting allows you to have a life insurance policy in place to give your loved ones some death benefits they may not have gotten otherwise.
- Having some coverage can still help ease the financial burdens on your loved ones if you pass unexpectedly.
- Group term life insurance policies are typically very affordable because employers get a discount for bulk coverage.
- The ability to port coverage is not automatic. You'll need to confirm you have that option with your employer.
- While term life insurance is typically more affordable than permanent coverage, your premiums may increase as you age. And, if you're over 65, you may qualify for less coverage.
- If your employer covered some or all of your premium, you'll have to pay the full cost moving forward.
- You may find that you can get a more affordable policy or more coverage through another carrier. If you're young and healthy, it might pay to shop around.
What Else Should You Consider?
Also, think about the time left on your policy. For example, if you've worked at your employer for 12 years and have a 20-year policy, only eight years of coverage are left. So, you may want to start new with a longer coverage term instead of porting what's left of your current policy.
The Bottom Line
When considering life insurance, it's always beneficial to explore all your options, shop around and find the best fit for your needs.