If your employee’s life insurance protection ends, continuing their coverage might be available through the Conversion and/or Portability option in your group plan. This means that s/he may have a choice of “converting” the coverage to an individual whole life insurance policy or “porting” it to another term life insurance policy. Employees usually have a 31-day window from the point when their coverage ends to apply for either conversion or portability.
Conversion allows an employee to convert their policy into a whole life insurance policy, regardless of their state of health as long as they apply within the allotted time frame. A whole life insurance policy provides lifelong coverage (until death or the maturity date); however, premium payments may be a lot higher than the group rates.
A whole life insurance policy (as opposed to a term life insurance policy) has a guaranteed cash value that builds over time and employees can take loans against the balance. Loans that are not repaid before the employee’s death will simply lower the death benefit payout. The policy also includes a cash surrender value which means if the employee decides to give up the policy, they can receive cash or continue the coverage without further premium payment. The amount of continued coverage would be based upon how much your cash surrender value could buy. “Converted” coverage can continue with premium payments until the Scheduled Maturity Date (date varies per insurance carrier) at which time the cash surrender value is paid to the employee.
Portability allows an employee to convert their group term life insurance policy to a personal term life insurance policy. Term life insurance provides coverage for a certain time period (“term”), and the employee would submit premium payments directly to the carrier.
Like a converted policy, employees are eligible for Portability regardless of health status as long as they apply within the time frame listed in the certificate of insurance or policy (usually 31 days after coverage loss). “Ported” coverage usually costs less than “converted” coverage.
Term insurance has no cash value or benefit at the end of the “term”, however the benefit is paid out if the employee passes away during the “term”. The death benefit is paid to the beneficiary – usually a spouse, adult child, family member or trust. Should the employee survive the “term”, the policy will simply expire after the term is up.
When an employee loses coverage, employers should provide prompt notice of the timeframes and limitations of his/her conversion and portability options. Note that some policies may allow conversion for coverage lost due to age reductions. NIS customers can find Conversion/Portability forms in their administration kit. Contact your NIS Representative if you have any questions.