Group Life Portability and Conversion
And when to compare these costs with an independent term policy of your own...
In the world of Group life insurance employees or members of the group are often said to have to main options with regards to their group life insurance policy: Conversion and Porting. The two are distinct and difference. Both Porting and Converting should typically be done while comparing an independent life insurance policy, such as a term policy, to determine the best overall price available.
Conversion vs Portability:
The terms conversion and portability are two similar terms having to do with group life insurance plans that are typically sponsored by employers. Once you leave an organization often you will want to consider taking your group policy with you. But does it make cost sense to do this?
Group Life Insurance is a terrific resource for members of the group or employees of a company... but what happens if you get fired or leave to take on another role?
This is the central issue with group life. And this is why both conversion and portability were created in the first place.
What is Group Life Insurance?
According to AXA: "Group life insurance is a type of life insurance in which a single contract covers an entire group of people." Group life insurance is commonly associated with employer life insurance. However there is nothing that says that a group policy must be an employer. It very well could be a labor organization. The most common form of group life is Term Group Life.
The owner of the group (the employer) owns runs the Group Life Policy with the Insuring company.
Group Life Insurance:
"...at type of life insurance in which a single contract covers an entire group of people."
What is Group Life Portability?
Porting life insurance involves taking your group life policy and moving or porting it to a term policy of your own. Porting will typically require a medical exam and you must be accepted. Porting is usually done to Term Insurance and NOT whole life insurance.
What is Group Life Conversion?
Converting life insurance involves changing your group policy to a cash value policy, typically a Whole Life policy. In some situations and in some states this may be a Universal Life Insurance policy. This too will usually require acceptance through a medical exam. It should be noted that whole life insurance is typically much more expensive than term insurance.
Portability vs Conversion vs Convertible:
Not to further confuse consumers but there is another use of a slightly different version of 'convert.' The term convertible when used in conjunction with a term life insurance policy can mean something slightly different here. Whereas the term 'conversion' can mean to convert a group life policy to a whole life policy. An independent (non group life) policy can also be said to be a convertible term life policy. This is a life contract that can at some later date be changed or converted to a whole or universal life contract. Often this is allowed with no medical underwriting.
These convertible term policies are coveted in the world of term insurance.
I realize that this is confusing. But if you are seeing the word convert or convertible and you do not have a group policy, likely this is what it is referring to.
Who is Eligible for Porting and Converting Group Life Policies?
This feature is for employees who either willingly or unwillingly lose their job and wish to continue their group life insurance coverage. More specific rules are laid out by the group insurer.
Best Practices with Conversion and Portability:
The number one rule when deciding what to do with a group life insurance policy is to find out all of the prices before you make any decision. Find out how much the port option will cost you. Find out what the converting option will cost you. Then take these numbers and shop around on the open market for a simple term policy. Compare all of these numbers and speak with some intelligent insurance agents.
If your health is questionable it could make sense to consider porting and even possibly converting it to a whole life insurance policy. However if you are young and in good health, shopping on the open market can make great sense.
One technique often employed is the following:
- 1Learn the True Costs and Process of Conversion and Porting.
- 2Compare the Independent Open Market Prices.
- 3Apply for Fully Underwritten Term Insurance.
- 4Wait for an Offer (or rejection.)
- 5Based on the potential offer - Make an Informed Decision.
Using this technique, although not fast, may allow you to discover if you truly can save money on the open term life insurance market. Perhaps you can or perhaps you cannot.
Best Practices Conversion & Portability:
- 1Find out the Prices and the Costs.
- 2Shop around on the open market.
- 3Compare and Contrast the Underwriting and the Yearly Premium Costs.
- 4Make an Informed Decision.
"Should I Port, Convert, or Shop It?"
The retiring mother who is stopping work after 35 years on the job. She is now 65 years old. Her overall financial situation is terrific and she chooses to port her group life policy to a ten year group policy with the Standard. She wants a little bit of protection in case something happens to her in the first couple of years of retirement to help her surviving husband with the small mortgage.
A widowed father who loses his job due to an economic downturn. He has diabetes and hopes to convert his group policy to a whole life insurance policy with Guardian. He believes that a small $200,000 permanent policy is great financial tool. He is changing careers and moving at after the employment change to a new less expensive area.
A young San Jose executive who has lost her job due to a dispute with her fellow employees. She shops on the open market and discovers a thirty year term life insurance policy that she applies for and is accepted at the preferred plus pricing from Banner Life Insurance. This $1,000,000 30 year policy is all that she believes that she will ever need.
The Single mom in New Mexico that is changing her job as a career change. Being married with small children she has depended on her group policy for several years and has just now come to the conclusion that she was underinsured all along. She shops on the open market, applies, and is saddened to only qualify for standard plus pricing from SBLI. However this price turns out to be a better financial deal for her, so she takes it.
Limitations of Porting and Conversion?
Many group life policies allow of a maximum coverage amount of $300,000 or the amount previously enforced. Often there are also certain minimum amounts that are allowed to be changed, such as a few thousand dollars.
There may be certain age limitations to porting and conversion of your group life policy. This age could be 65 or 70. Please see your work policy contract for details.
Some group conversions and or portability rules may require that you have had your current job for a specific period of time.
There may be limitations based on cessation of employment due to a disability.
Porting and Conversion are only available from eligible group life policies. Typically you must still be employed at the time of the decision. There are numerous other rules and regulations laid out in your company group life policy.
There are other more detailed limitations to these policies, please see your group life insurer's website.
Summary of Portability vs Conversion:
Should you port or convert your group life insurance policy is up to you. What we can suggest to consumers is that you do your homework and find where the best deal may lie. Both portability and conversion are relatively confusing. Chances are you won't understand it, if you do not ask about it. The best person to ask at an employer is usually in the human resources department.
After you find out who the best contact is, you will need to call the group insurer yourself. Find out what the costs are to both port or convert this policy to your own. Then shop on the open market and apply for a term life policy. You may discover that it makes more sense to stay with a ported group policy. You may find that an independent term policy of your own is far cheaper.
You will not know unless you try though.
Leaving a Group Life Policy:
"The number one rule when deciding what to do with a group life insurance policy is to find out all of the prices before you make any decision. Find out how much the port option will cost you. Find out what the converting option will cost you. ."
Here are some simple questions about group life insurance with regards to portability and or conversion.
Question: Portability Vs Conversion - does it really matter?
Answer: Both the terms portability and conversion are group life insurance. Portability generally refers to going to term life and Conversion generally refers to changing it to a whole life insurance policy. In general you need to ask yourself which form of insurance would you rather have.
Question: Portability Vs Conversion - Who do I ask at my company about this?
Answer: Ask your human resources department. They will often turn you over to a benefits company that can better handle your question. Chances are they will have a document that you can review.
Question: Portability and Conversion - Will I always save money buying my own term policy?
Answer: It depends. You may or may not save money. One thing is for certain you will not know unless you reach out to an independent agent to inquire.
Kindly let us know if you have any questions. scott @ marindependent.com