Why Most People Have Life Insurance at Work and They May Lose It When They Retire

Today, an incentive of working at many companies – both large and small – is that of obtaining employee benefits. These benefit “packages” will typically include insurance coverage such as health, disability, and life.

Group term life insurance can be considered a primary tool of financial protection for employees and their families. It provides coverage for a specific period of time and pays a benefit if a covered person passes away during the term of protection. This base level of protection can be enhanced by the individual’s personal savings and other possible financial resources. The death benefit is paid income tax free to the named beneficiary.

Oftentimes, especially when the primary income earner in a family dies, their loved ones must drastically change their lifestyles due to this loss of family income. Life insurance can help to prevent the person’s family from having to endure the loss of a loved one and the hardship of being unable to pay rent or a mortgage, utilities, and other basic necessities. Without life insurance, loved ones are often forced to sell their home or make other drastic lifestyle changes.

The most common form of group life insurance is term insurance. Typically, it is provided in the form of yearly renewable term. Often, the life insurance coverage provided by most group plans is one-year term.

The plan comes up for renewal each year, and both the insurance company and the employer or group have the opportunity to consider whether to continue it. For the insurance company, this is also a good time to revise the rates.

What Happen When a Person Leaves the Group

While an individual is still employed, the benefits may be used. However, upon leaving – due either to getting another job, termination, or retirement – the employee may have various options in terms of what he or she can do with their coverage.

For example, group term life insurance coverage will typically remain in force until a participant’s employment is terminated, they leave the membership organization, or until the specific term of insurance coverage has ended.

In group insurance situations, especially with regard to larger groups, there is usually a constant amount of change in that people are continuously entering or leaving the group. An insured may have the option of converting his or her group life coverage into an individual life insurance policy when they leave the group. This “portability” allows the insured person to take their insurance coverage with them.

Usually when an employee leaves the group and takes their life insurance coverage, the policy converts from a group term life insurance policy to a permanent individual policy. In many cases, the person can convert up to 100% of the face amount of coverage that they had on their group plan. For example, if the death benefit on the group life insurance was $100,000 then they will have a $100,000 permanent individual life insurance policy after the conversion takes place.

Sometimes the insurance coverage can be taken at the same rates. However, the new premiums tend to be much higher than the premium they were previously paying as part of the group coverage. There are also age limitations for porting coverage. And, some ported coverage terminates if the employer’s contract with the insurance company terminates.

The employee who is porting their coverage is responsible for contacting the insurance company within 30 days of leaving their job. They will also be responsible for sending their premium payments to the insurance company directly. Those who do convert are more likely to be those individuals who would otherwise be uninsurable.

Some companies offer group life insurance that continues after an employee retires. For example, the coverage could reduce by 15% of the original amount at age 70, then it reduces again by an additional 25% of the original amount at age 75. Eventually the coverage ends or drops to a final reduced amount. Such reduction schedules are a very important part of the group insurance industry. Without them, the cost of insurance could potentially double or triple for younger employees.

How to Get Personal Life Insurance Protection to Call Your Own

In order to obtain personal life insurance protection, you can shop for an individual policy. These plans can typically be purchased either in person or online. In doing so, you will need to shop for the coverage that will best suit your specific needs.

First, you should decide if you need term or permanent coverage. Term insurance is oftentimes less expensive than other types of life insurance coverage because it simply offers a death benefit. Features that are found in term life insurance policies typically include:

  • Temporary Coverage. Term life insurance offers coverage for a limited period of time. Unlike most other types of life insurance, a term policy eventually expires. Temporary coverage means lower start-up premiums. With group term life insurance, generally the premium rates are spread throughout the group in order to get an average premium for each member. This provides you a great opportunity to obtain life insurance coverage without having to pay excessive rates for it.
  • Pure Death Benefit. The aim of term life insurance is to provide a lump-sum payment to the insured’s named beneficiary (or beneficiaries). These funds may be used for paying the insured’s funeral or final medical costs, as well as to replace the income that is lost when he or she passes away. With term insurance, the insured is not paying extra for other options that he or she is unlikely to use.
  • No Cash Value Build-Up. Term life insurance does not contain a cash value feature in the policy. This means that the premiums go only towards paying for the pure death benefit, and therefore can remain lower. This also allows the insured to use other funds for a savings or retirement plan.

Permanent coverage will provide a death benefit, along with cash value build up. This cash grows on a tax deferred basis, and over time can build up exponentially. It can be borrowed or withdrawn and used for any need you see fit. The premiums on a permanent life insurance policy are locked in throughout the life of the policy.

When shopping for life insurance, we can help. We work with many of the best life insurers in the market today. In order compare policies and premiums, just simply Click Here. Should you have any questions, you can contact us directly at 864-491-5785 and we will be happy to provide you with the information that you need.

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