Understanding Life Insurance Conversion & Portability

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

With Conversion, an employee can convert their policy into a whole life policy, regardless of their state of health. Again, they must apply within the allotted time frame.

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.

• Premium payments may be a lot higher than the group rates
• Some policies allow conversion for coverage lost due to age reductions
• 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

An employee would be eligible to convert their group term life insurance policy into a personal term life insurance policy if their plan includes portability.

An employee is eligible for Portability (regardless of their health status) as long as they apply within the stated time frame (listed in the certificate of insurance or policy). It is usually 31 days after loss of coverage. Portability is more intended to provide coverage during a gap in insurance (for example – a change between jobs).  Portability is normally not allowed for disabled employees or retirees.

• Ported coverage usually costs less than converted coverage
• Premiums are often submitted directly to the carrier
• Coverage is provided for a certain “term” (period of time) and expires when the term is up
• No cash value or benefit at the end of the term
• If the employee passes away during the term, the benefit is paid to the beneficiaries

Employer Responsibility

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.