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.
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.
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.
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.