Life Insurance Portability vs Conversion: Which is Best for You?

In today’s economy, the sad fact is that no job’s likely to last forever. 

If you’ve unexpectedly found yourself unemployed, you may no longer be eligible for the employer-sponsored group plan you’re enrolled in.

You don’t need us to tell you that group plans are often valuable sources of financial protection for employees and their families. This is why many consider continuing their coverage even after their employment’s terminated.

Life Insurance Portability and Conversion are two such methods that allow you to continue with your coverage. Both are valid options that appeal to people in different scenarios.

So, in this article, we’ll cover what life insurance portability and conversion mean and compare their benefits and drawbacks. By the end, you should have a clear idea of your options.

There’s lots to discuss, so let’s dive straight in!

Main Differences Between Life Insurance Portability vs Conversion

The main differences between Life Insurance Portability vs Conversion are:

  • Life Insurance portability covers you only for a fixed term as decided by your previous employment cover, whereas with conversion, you can keep the insurance running for as long as you want.
  • Life Insurance portability often comes with an age restriction, whereas conversion doesn’t.
  • Life Insurance portability premium may go up as you get older, whereas the premium on converted cover remains the same.
  • Life insurance portability provides cheaper, more affordable coverage to start with (bear in mind that the premium is likely to increase.), whereas conversion is more expensive.
  • Life insurance portability doesn’t allow withdrawal of cash, whereas with converted insurance you can do that.

Life Insurance Portability vs. Conversion: Their Similarities

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These two options for continuing your life insurance policy after your employment’s terminated aren’t too similar. You have to choose which provides the cover you need to suit your current circumstance, and either one or the other will come up trumps. 

However, there are a few overarching similarities worth noting:

  • Premiums for both life insurance portability and conversion may depend on your health and age at the time of application. 
  • Both options may have smoker and non-smoker rates.
  • Exact eligibility requirements and benefits will always vary depending on the provider.
  • You usually have between 30 and 60 days to apply for either option after your employment’s terminated. The exact time frame will depend on the provider.
  • Both porting and converting your life insurance relies on you being able to pay the premium yourself going forward

What’s Life Insurance Portability?

Portable life insurance is insurance that’s assigned to you so that when you leave a job or start at a new workplace, you can take your coverage with you. 

If you unexpectedly lose your employment and, thereby, your coverage, you can usually apply for portability. Usually, this has to occur within a specified time window of eligibility after your previous coverage comes to an end. 

With life insurance portability, you decide to continue with the company’s policy you were employed with. However, because company coverage is often part of a group policy, and only life insurance policies can be ported, this coverage has no cash value.

In other words, you won’t be able to collect money from the policy. Instead, your beneficiaries will receive the benefit of the coverage when you pass away.

After you leave the company and opt for life insurance portability, you’re responsible for making your policy payments. Interestingly, you may be able to increase or decrease the value of your policy. However, this will depend on the terms of the original group policy. If in doubt, contact your provider for more information. 

What’s Life Insurance Conversion?

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In contrast, if you convert your life insurance policy, this means you’ve decided to change the group, term, or life insurance policy your company offered. 

As such, you have the option of changing your coverage to a permanent policy, which in most cases is an entirely different life insurance policy.

As a result, there’s no time limit on your policy, and as long as you keep paying the premium, it will cover you for the remainder of your life. Converted policies also don’t have as many eligibility criteria. As such, it might be a more accessible option for you in some cases.

Which policies you can convert and the extent to which you can change them is at the insurance provider’s discretion. Often, they’ll have their own criteria for insurance conversion. But, typically, you can convert up to the same value of coverage as your old policy. 

Life Insurance Portability vs. Conversion: Eligibility

What Makes Me Eligible for Insurance Portability?

Whether you’re eligible to continue your life insurance policy will depend on each insurance provider’s specific criteria.

As such, you’ll have to do your research to double-check your eligibility or contact your provider directly. That said, here are a few standard eligibility requirements; the insuree must be:

  • Under the age of 65
  • Insured for at least 12 consecutive months
  • Not be retiring yet
  • Free of any illness or injury that has a material impact on life expectancy
  • Complete the application within a month of their employment status change
  • Able to maintain the required insurance payments

What Makes Me Eligible for Insurance Conversion?

Again, the exact eligibility requirements for insurance conversion hinge on your insurance policy and provider. That said, a few commonly spotted terms include that the insuree is:

  • Covered by a group life insurance policy
  • Terminating employment or retiring
  • Losing group coverage due to age or change of class
  • Completes an application within one month of employment status change
  • Able to maintain the required insurance payments

Life Insurance Portability vs. Conversion: The Pros and Cons

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For easy comparison, here are the pros and cons of both insurance continuation options listed side by side:

Life Insurance Portability: The Pros

  • Life insurance portability can provide cheap coverage and is often more affordable than many alternatives.
  • Not much will change for you as you just take over the policy you’re already familiar with

Life Insurance Portability: The Cons

  • The policy only covers you for a fixed term. For example, if your company policy had a period of 30 years and you worked there for 20, it will only cover you for another ten years.
  • There’s often an age restriction on portability. As you age and exceed this limit, you might not be able to renew the policy. 
  • Premiums for porting your life insurance will increase as you get older. 

Life Insurance Conversion: The Pros

  • You gain access to your own life insurance policy without being locked into the terms of your employer’s coverage.
  • There’s no fixed term, so you can count on coverage for as long as you make payments and stick with the provider.
  • There are no age restrictions on converting life insurance.
  • You may be able to withdraw cash from the policy. 
  • Premiums will remain the same as time goes on.

Life Insurance Conversion: The Cons

  • Premiums for life insurance conversion are generally more expensive than if you port your insurance.
  • Whole life insurance rates are usually lower than what you might have received if you invested the money instead.

FAQs

Question: Will I have to undergo a health examination to port my life insurance?

Answer: The portability of life insurance may be dependant on your health. Some insurance providers may refer to your medical history to make a decision. There are also often smoker and non-smoker rates that may differ from the rates used in the group.

Question: What are conversion premiums based on?

Answer: The rate for a converted life insurance policy is based on the state of residence and the insuree’s age when you apply. This may vary depending on your insurance provider. So, it’s always wise to get a quote for either option.

Question: How much time do I have to apply for insurance portability and conversion?

Answer: Your group’s insurance provider will have their own terms of eligibility, including an application deadline. Usually, this is around a month, but it can be as long as 60 days after employment termination.
Note that the termination date for employment may differ from the termination date for coverage, which is often more relevant for those converting their policies. 
Your employer should typically give notification of your options as soon as possible after employment termination.

Question: Are there fees for porting or converting a life insurance policy?

Answer: You’ll have to check with your insurance provider to see their terms. However, for porting, likely, there may not be a fee as the insurance rates themselves often suffice. On the other hand, converting your policy may incur an annual fee in addition to premium rates. But, as we’ve already said, you’ll need to check with your provider for a concrete answer. 

Life Insurance Portability vs. Conversion: Our Final Thoughts

Life insurance provides you and your family some much-needed peace of mind, and as such, it’s essential you have the coverage you can rely on. 

As life insurance policies are often expensive, you may have depended on your employer’s group coverage. If cost is your main concern, then porting your life insurance is most likely your best option for preserving a cheap premium. 

That said, if you can afford it, converting your life insurance usually carries with it loads more benefits. For one, the insurance is yours to keep so long as you make the payments, so you can rest easy knowing you’re fully covered until your death. Not to mention, insurance premiums are also more consistent, i.e., they’re not reliant upon your age.

Last but not least, it’s a good idea to think about your life insurance future so that you’re prepared in the unfortunate event your employment coverage falls away. After all, once a job is terminated, you’ll only have around a month to make the relevant application.

We hope you found this comparison helpful! Let us know in the comments below what you think. Is it better to convert or port your life insurance? We’d love to hear your opinion. Speak soon!

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