If you have a life insurance policy you bought independently, there’s nothing to worry about if you leave your job — your policy will stay active as long as you keep paying your premiums.
On the other hand, if you only have life insurance you bought through your employer, it will typically lapse when you leave that job.
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
What are the main differences between employer-sponsored life insurance & private life insurance?
There are many differences between employer-sponsored and private life insurance — mostly related to how you apply, how much coverage you can buy, and how long your coverage lasts. Understanding the differences can help you decide how to replace your coverage if you’re switching jobs or you’ve been laid off.
Application process
When you apply for life insurance through your employer, you’ll be able to opt in during your benefits enrollment.
There’s no medical exam required to apply — and your approval isn’t contingent on your health status (unless you opt for supplemental group coverage, in which case there may be health requirements).
By contrast, when you apply for a private policy, you’ll need to fill out a detailed application with your medical history and financial information.
You’ll also either need to take an in-person medical exam or complete a health questionnaire over the phone for most types of private policies.
Coverage amount
Group coverage through your employer is limited in coverage amount — usually up to a certain point (for example, $50,000) or a multiple of your salary (one to two times).
If you have financial obligations like children, a spouse, or a mortgage, this likely won’t be enough coverage for you.
Private life insurance is entirely based on your financial needs — your coverage amount will be proportional to your income and expenses.
People in their 30s, for example, can often get approved for 20 to 30 times their annual income in coverage, since they have more working years until retirement.
Learn more about how much life insurance you can buy
Length of coverage
Employer-provided life insurance usually only lasts as long as you stay with that organization. Sometimes, you can elect to transfer the coverage to a private policy. In this case, you’d need to start paying premiums, even if your employer subsidized the coverage initially.
Private life insurance lasts as long as you keep paying the premiums — term life insurance will last through the specified term of the policy, and permanent life insurance won’t expire.
Learn more about how long your life insurance coverage should last
Cost
Group coverage through an organization is often subsidized, so oftentimes you don’t have to pay for it at all. If you do, it’s likely at a discounted rate and simply deducted from your paycheck.
However, private life insurance rates are often affordable, too. A healthy 30-year-old could pay between $15 and $18 per month for a $250,000 term life insurance policy lasting 20 years.
Learn more about life insurance rates
What are your life insurance options when you leave a job?
Most people buy a private life insurance policy if they’re losing coverage through their job. Sometimes, you may be able to transfer or convert your work life insurance coverage to a personal policy, but these options aren’t available with many benefits plans. It’s best to reach out to your human resources department at work first to confirm your options.
No matter which route you choose, there’s a limited time frame (often up to 30 days) between when you leave your job and when your coverage will terminate, so it’s helpful to have a plan in advance.
Port your life insurance policy
How does it work?
Your group coverage might be portable — meaning you can keep the coverage if you begin paying the premiums directly to the insurance company, instead of having your employer pay them. Your benefits manager should be able to let you know the necessary steps and paperwork to complete to pursue this route.
Pros
You get to keep your coverage. By porting your policy, you can keep the same coverage you had through your employer with minimal changes to your policy.
No additional health requirements. Generally, if your coverage is portable, you won’t have to take a medical exam or meet other health requirements.
Learn more about how to transfer a life insurance policy
Cons
You may pay more in premiums. It’s possible that your policy might cost more than what you’d pay if you bought a new life insurance policy independently.
You may need to renew each year. Some portable policies become annual renewable term life insurance, which means you’ll need to renew each year at a slightly higher premium.
Convert your group life insurance policy
How does it work?
In some cases, you can convert your group term life insurance into an individual, whole life insurance policy. You may be able to do this directly with the insurer, or you might need to port your coverage first, and then convert it — it depends on the original policy.
Pros
You get to keep your coverage. This option means that you’ll keep the same amount of coverage you had through your original employer. You usually don’t have to take a medical exam in this case, either.
Permanent life insurance doesn’t expire. Whole life and other permanent policies last for the rest of your lifetime, so you won’t have to worry about the coverage lapsing or expiring in the future.
Cons
Expensive premiums. Permanent life insurance is significantly more expensive than term life, so you’ll be paying more in premiums for the same amount of coverage.
Buy your own private life insurance policy
How does it work?
You can buy a private life insurance policy at any time — on your own, through a broker, or through an agent. Once the insurance company of your choice approves you for coverage, you’ll be able to keep your policy no matter how many times you switch jobs.
Pros
Consistent coverage. You won’t have to worry about losing coverage when you change employers in the future. Your private policy will last as long as you keep paying your premiums — or through the length of the term.
Affordable. A private life insurance policy is oftentimes cheaper than porting or converting your work coverage, but it ultimately depends on your health profile. A 30-year-old in good health could pay as little as $26 per month for a 20-year term life insurance policy with a $500,000 payout.
Cons
You may have to take a medical exam. This is a common part of the application process for private life insurance, even though it’s not required for group coverage. However, the exam is free and a medical practitioner can meet you at your home or office — and if you’re young and have just one or two mild health conditions, you might be able to skip this step and be eligible for a no-exam life insurance policy
There’s often a waiting period. It can take up to four to six weeks for an insurer to approve you for coverage, so you might have a coverage gap if you wait to apply until after your employer’s policy expires.
Learn more about term life insurance rates
How to buy a private life insurance policy
Learn more about how to buy life insurance
Frequently asked questions
Should you get life insurance through your job?
If your employer offers subsidized life insurance as part of a benefits package, it makes sense to opt in, especially if there’s no cost to you. Group life insurance through your employer may not offer enough coverage for your full financial plan, but you can always supplement it with a private policy.
What happens to your private life insurance policy if you leave your job?
Private life insurance policies aren’t tied to your employer, so you’ll be able to keep this coverage even if you leave your job (as long as you keep paying the premiums to keep the policy active).
