Life Insurance

What Is Life Insurance Portability?

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Some employers offer group life insurance as a benefit for employees and their families. When certain trigger events occur, like leaving the company, employees may be able to keep this coverage by porting their life insurance policy. In some cases, however, there are other options that make more sense to ensure you and your family have enough coverage.

When you lose employer-sponsored life insurance, you may want to switch the same policy to your own name rather than through the company. The death benefit amount does not change, and you may still be eligible for the group rate. However, your premium payment could change if your employer was covering part of the cost. If that's the case, you’ll end up paying more than you used to for the same amount of coverage. It’s not that the price went up—it’s just that you’re now responsible for the full amount. 

Here are common trigger events that could open the door to porting a life insurance policy:

  • You leave your job
  • Your spouse leaves their job and loses coverage
  • Employer stops offering this benefit
  • You get divorced

In many cases, it may make sense to start a new policy in your own name, rather than porting over a company policy. Ethos offers affordable term life policies that may offer better benefits at a lower cost than sticking with the policy your previous company provided. 

How to port your life insurance policy

Start by checking with your human resources department and your life insurance company on what steps you should take to port your policy. Watch out for time constraints, which are typically within 30 to 90 days of ending your employment. Once you port your policy, payments go directly to your insurance company rather than having them deducted from your paycheck

Most employer life insurance policies range between $20,000 to $50,000. This may not actually be enough for your beneficiary to cover your final expenses, debt, and lost income. How much life insurance do you need? A quick rule of thumb is to multiply your annual salary by 10. But you can also quickly add up your mortgage, other debt, education expenses for your kids, and a certain amount of income you want to leave behind. 

If you’ve had major life changes, like the birth of a child or a divorce, this is a good time to reevaluate the size of your death benefit. Depending on the cost, portable term life insurance may work better as a supplemental policy rather than the bulk of your coverage. 

Life insurance portability vs. conversion

When you are leaving a company and exploring the portability process for your life insurance, you may be able to convert it instead. Instead of locking in your term and death benefit at its current group rate, you instead convert your policy from a term policy (which expires after a set period of time) to a permanent policy. That way, you get coverage until you pass away, regardless of age. 

Here are the key differences between these two options.

Cost and type of policy

Porting is typically less expensive than converting because you’re locking in the group life insurance rate from your company. Plus, these policies are typically term, meaning they only last a certain number of years. Converting a policy is more expensive because your coverage lasts for your entire life.

Medical changes

Portability may not be allowed if you have an illness or injury that reduces life expectancy. With a convertible policy, however, you could still get coverage in this situation—you would just need to pay higher premiums. Each insurer has its own requirements, including whether or not you’ll need a medical exam in order to port or convert your policy. 

When to buy a new life insurance policy

For many people, it may be worth shopping around for an entirely new life insurance policy. Ethos, for instance, makes it easy to get a quote by filling out a short online form. Plus, you don’t have to worry about a medical exam (just answer a few health questions), even if you’ve had changes to your health since you enrolled in your group life insurance policy. Just like any financial decision, it’s smart to compare multiple options so you can find the best one. 

Bottom line

Major changes in life can cause you to reevaluate many aspects of your financial situation. Life insurance is an important area to pay attention to so that you always have the right amount of coverage for your family. When you leave a job, portability might give you a nice discount by keeping that group life rate. But if your employer no longer covers a portion of the premium or you realize you need more coverage than the current plan offers, then it’s time to look around at other options. 

Ethos offers a great starting point to compare multiple levels of online life insurance coverage. Start applying.

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