What is Life Insurance Portability?
Most people buy a life insurance policy through their employer which makes portability important. Insurance portability is the ability to take your group life insurance coverage with you when you leave a company.
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Life insurance usually covers the wages you would have brought in over a period of time. Generally, insurance covers around ten years’ worth of income. Most people buy a life insurance policy through their employer—portability is the ability to take your group life insurance coverage with you when you leave a company.
Deciding on a life insurance policy can be challenging, especially when you consider that most people change jobs every five years. It’s essential to learn more about life insurance portability and how to ensure you’re covered while navigating the modern work environment.
What Is Life Insurance Portability?
Portability refers to the option to buy group policy coverage from your employer’s plan when you leave—sometimes call porting or purchasing the coverage. Employers can but are not required to provide plans that you can port.
Some characteristics of portable plans are:
They are term policies, expiring after a predetermined period.
They usually have age and time criteria you must meet to be eligible to port them.
They can have different rates for smokers and non-smokers.
They don’t require a physical.
How Does Portability Work?
The intent behind life insurance coverage is to ensure that the people who depend on you have a source of income that allows them to live at the standards they enjoy. Many people have life insurance through their employers because individual insurance can be expensive. A group plan enables employees to pool their finances, which has the effect of lowering monthly premiums.
Employers provide group coverage plans, which are term life insurance plans for a group of people. Term means that the plan only covers you for a period, and you must renew them at the end of the term. Companies usually conduct an open enrollment when the term ends.
When you leave an employer, they might let you keep your coverage by allowing you to port your plan. You keep the coverage you had, and the policy remains a term life insurance policy. The responsibility to pay monthly premiums then transfers to you instead of your employer.
Sometimes, policies include “riders” or additional features. Examples of a rider could be long-term care or child-term insurance. Depending on the policy rules, you may be able to keep any riders on your policy.
Most employers only allow policy porting for people who meet specific criteria, such as a maximum age and a minimum existing enrollment period.
What Is the Difference Between Conversion and Portability?
If you don’t meet the employer’s requirements, your plan may detach from the group life insurance policy and become an individual plan. This is called conversion and may come with different stipulations, higher premiums, or various other changes.
Some critical differences between portable and conversion life insurance are portable insurance:
Remains term life insurance only
Remains a group policy
May have various stipulations
Employers may require vestment in a policy (a specific amount of time covered), and specify a maximum age at which a policy can be ported. Some insurance policies:
Can be converted to individual whole life, universal, or variable life insurance
Become an individual policy after conversion
Can be converted only during the conversion period
It’s essential to know the most common types of plans to help you decide. Your financial circumstances may also dictate whether conversion or portability is best for you.
Term Policies
A term policy has an end, usually a certain age, a year, or length of time. Policies can have terms that last anywhere between one and 30 years. The significant difference between short and long terms is usually the premium you pay. Shorter-term plans generally have lower premiums, while longer plans typically don’t.
The average life expectancy in the U.S. is 78.7 years. The most popular life insurance option is a 20-year policy. If you buy a policy when you’re 55, there is a good chance you may outlive your coverage. Many term policies expire before the insured person dies, so their beneficiaries receive no payout.
For this reason, term policies are best for people who don’t need coverage for life—only enough to ensure beneficiaries can pay off any large debts and have some financial reserves if something unexpected happens.
Term policies are an excellent choice if you have the financial means for your loved ones to pay off large debts and have enough leftover for the lifestyle you want them to have. If you outlive your policy, the coverage ends and your retirement accounts take over to provide income whether you are here or not.
Whole-Life Policies
Whole-life policies cover you for your entire life and build up a cash value that you can use to take out loans against or use as a financial asset. Because these policies cover you until you die, the premiums are much higher because the insurance company is obligated to pay out—as long as you pay your premiums.
Sometimes called permanent life insurance, whole-life policies are an excellent choice for people who want to leave money for their dependents and beneficiaries.
Variable Life Policies
Variable life policies are permanent life insurance based upon investments. This means that they will grow or shrink in value depending upon the assets that form them. You still pay monthly premiums, but regulatory authorities such as the Security Exchange Commission (SEC) and IRS treat and tax them as investments.
Variable plans are an excellent choice for someone that accepts the risk that comes with investing, who has enough financial assets to assist their loved ones if something happens.
Choosing a Plan
When you’re considering buying insurance to cover your future income, it’s essential to determine how much you need to leave behind. A good rule of thumb for determining how much you need is to add up your annual income and multiply it by ten.
Ten represents the number of years that many insurance agencies use to estimate your plan’s dollar amount of coverage. For example, insurance agents might give someone who makes $25,000 a year a $250,000 term or whole life policy.
Figure out how much you can spare to pay per month for premiums, and decide whether you want a term or whole life insurance policy. Begin contacting insurance providers and get some quotes on premiums and coverage.
Compare quotes from at least three companies, and decide which type, coverage, and premiums work best for your financial capability. Your financial and health circumstances—and the steps you take to prepare for your future—determine the type of insurance that will help your loved ones the most when you’re gone.
Key Takeaways:
Portable policies let you buy your group coverage when you leave an employer.
Portable policies are term policies and have an end date.
Changing a policy to another type, i.e., a permanent policy, is called conversion and isn’t a portable policy feature.
Choose a plan that fits your financial needs and plans.
Term life insurance is excellent for some people, while permanent works best for others.
If you need assistance, PolicyScout can help you review your circumstances and provide quotes to help you compare policies and decide. Contact us to learn more!