Continuing group life insurance benefits when leaving employment

Linda Sherlock, Managing Executive for Business and Distribution Enablement at Alexander Forbes.

As part of group life insurance benefits, members may have the option to convert their existing group life insurance cover to an insurance policy when leaving their employer.

Linda Sherlock, Managing Executive for Business and Distribution Enablement at Alexander Forbes, said it was very important that members understood what life insurance benefits they gave up when leaving their place of employment, and to what extent they would be able to replace these benefits in their personal capacity. “Not all benefits provided to employees include the option to continue cover after leaving employment.”

Benefits available to convert existing group life insurance benefits to an individual policy:

• Members can take out an individual policy without having to go for any medical assessment or testing. This allows exiting members to obtain a policy at a better premium than they would be able to on a like for like basis in the open market.

• Most individuals are under-insured, even taking into account the existing group life insurance benefits that they enjoy, so even if they move to a new employer that provides them with similar benefits it’s a good idea to improve their financial position by securing cover in their personal capacity and without the need to undergo any medical assessments.

“When joining an employer, one of the employer-based benefits which form part of the employment contract may be group life insurance benefits. The benefits covered will be specified in the employment contract. These may include life, disability (income or lump sum) and / or critical illness protection. The amount that you are covered for is directly related to your salary (more specifically, generally your risk salary) and will increase and change as your salary changes.

As mentioned above, this may or may not include the option to convert your existing benefits to an individual policy on termination of employment,” Sherlock said.
Why is this option important?

• When employees retire, the benefits that they enjoyed with a company will cease. Therefore should they have outstanding liabilities, such as debt or inheritance considerations for their children, these may no longer be covered. By exercising the option to continue cover in their personal capacity, they can ensure they remain protected.

• Upon resignation, members have the opportunity to:

o Replace the cover that they enjoyed with their employer
o Reduce any financial gaps identified by their financial adviser
o Take out a new policy to provide protection in the event that they are setting up their own business or partnership and to secure any debt that they may acquire.

“Make sure you take the time to speak to both your human resources consultant and to an accredited financial adviser when leaving employment. This will help you understand you’re your options are and how any existing benefits you’ll be able to keep will work to ensure you can stay on track to secure your financial well-being.”