When Does Group Life Insurance End for an Employee?
Understand when your employer-sponsored life insurance coverage changes or ends and what choices you have for continued protection.
Group life insurance provides financial protection to an employee’s beneficiaries, often as an employer-offered benefit. This type of coverage is usually term life insurance, meaning it covers a specific period and does not accumulate cash value. Its primary purpose is to offer a death benefit to designated individuals should the insured employee pass away while covered. Group life insurance is generally tied to one’s employment status, and therefore, coverage can cease under various circumstances.
Standard Coverage Termination Events
Group life insurance coverage commonly ends when an employee’s employment concludes. Whether an employee resigns, is laid off, or is terminated, the coverage typically ceases on their last day of employment or after a brief grace period, which can range from a few days to about 30 days.
Retirement also frequently triggers the termination or a significant reduction of group life insurance benefits. Some employer plans may offer a reduced amount of coverage to retirees, but it is often a fraction of the coverage held during active employment and may require continued premium payments by the retiree.
Beyond individual employment changes, an employer’s decision to discontinue the group life insurance plan altogether can also lead to termination of coverage for all employees. This can happen if an employer switches insurance carriers or decides to no longer offer the benefit. Employees would typically be notified, but the coverage would cease according to the plan’s terms. Coverage can also end if an employee no longer meets the eligibility criteria for the group plan.
Options After Group Coverage Ends
When group life insurance coverage ends, employees may have options to continue some form of life insurance protection. One such option is portability, which allows an individual to continue a portion of their group term life insurance as an individual term policy. This option typically does not require a medical examination, but the premiums are usually higher than the group rates. Exercising this right usually has a strict timeframe, commonly requiring action within 30 to 60 days after the group coverage ends.
Another option available to former employees is conversion, which permits converting the group term life insurance into an individual permanent life insurance policy, such as whole life insurance. This conversion typically occurs without the need for a medical exam, ensuring continued coverage regardless of an individual’s health status. Premiums for converted policies are generally higher than group rates and often exceed those for portable term policies. The window to exercise conversion rights is often short, frequently 31 days from the date group coverage ends, though some plans may allow up to 90 days.
Both portability and conversion provide ways to maintain coverage without new underwriting, which can be beneficial for individuals with health conditions that might otherwise make obtaining new insurance difficult. However, it is important to act promptly within the specified deadlines, as missing these windows can result in the loss of these continuation rights. Comparing the costs and benefits of these options against purchasing a new individual policy is also prudent.
Impact of Specific Employment Scenarios
During certain temporary employment scenarios, group life insurance coverage may not outright terminate but rather be affected by specific provisions. For employees taking an approved leave of absence, such as under the Family and Medical Leave Act (FMLA), continuation of group life insurance often depends on employer policy. While employers are generally required to maintain group health benefits during FMLA leave, continuation of other benefits like life insurance may require the employee to pay the full premium, including both the employee and employer portions.
In cases of long-term disability, many group life insurance plans include a “waiver of premium” benefit. This provision allows an employee to continue their group life insurance coverage without paying premiums if they become totally disabled. This benefit usually remains in effect for the duration of the disability.
Temporary layoffs might also have specific clauses regarding group life insurance. Some employer plans may allow for the continuation of coverage for a limited period during a temporary layoff, sometimes requiring the employee to pay the full premium to keep the policy active. These provisions are outlined in policy documents and vary by employer.