With unemployment so high, more and more people have to pay attention to their life and disability insurance coverage, as employer-provided options become less accessible or unavailable. Among other issues, employees who lose their jobs may be faced with decisions about how they might continue to pay for protection.
Many workers, especially younger workers, depend on the group life insurance and disability benefits they receive in the course of their employment. They can receive these blankets free of charge or at a nominal cost, often reduced. However, once a person is put on leave or terminated, some or all of this coverage may no longer be available, or the price may be high.
Unlike health insurance coverage, where private companies employing more than 20 people must offer an option for COBRA, the rules regarding the continuity of life and disability coverage are less clear. Rules depend on company policy and group insurance plan terms and applicable state law.
Given these realities, here are some answers to the questions that people may ask themselves in a situation of work stoppage or uncertainty about life and disability coverage.
What happens to my policy if I am put on leave or if I am terminated?
Some disability and life insurance plan documents allow an employer to maintain coverage during a period of unpaid work for specific reasons such as time off, says John Dooney, human resources knowledge advisor at the Society for Human Resource Management.
Even in cases where plan documents do not allow it, many employers will work with their disability or insurance providers so that coverage can be extended while an employee is on leave, he says.
For laid-off employees, many group plans allow laid-off employees to convert disability or life insurance plans to an individual plan. Employees who choose this option pay the full amount of the premium, often directly to the insurer, Dooney says.
So it’s important to read the company’s plan documents or ask the human resources department what options may be available, says Nina Mitchell, Senior Wealth Advisor and Director of The Colony Group, a registered investment advisor based in Boston.
The questions to ask are: What benefits will you cover if I am on leave? Would it be different if I’m let go? If there is an option to maintain my existing benefits, is there an additional cost or cost? Is there an option to increase my benefits, and at what cost?
If my business allows me to convert my policy, should I do so? Or would I be better off buying a font on my own?
When it comes to disability coverage, deciding the fate of your business’s coverage should be straightforward. Convert policy. You can only purchase disability insurance if you are currently working 30 or more hours per week. So if you are one of the lucky ones whose company allows you to convert a disability policy, do so because you won’t be able to purchase a policy once you’re unemployed.
With life insurance coverage, the decision might be less straightforward
The first step is to review your business coverage. Chances are, any company policy will only provide some of the protection you will need since many employees opt for the “free” coverage option which could be $ 50,000, $ 100,000. or once the employee’s salary, for example.
Determine if you can convert the employee policy to an individual policy. Then see if there is an option to purchase additional coverage. Some plans allow it, but depending on the increase requested, an insurer may require proof of good health, according to Dooney, the human resources professional.
The next step is to shop around for the free market. Policy costs can vary widely, depending on factors such as policy term, gender, age, health, state of residence, and insurer. A young, healthy person can find better and more affordable coverage by comparing with various insurers rather than just converting a group policy to an individual policy, says Erin Ardleigh, president of Dynama Insurance, an insurance brokerage firm. independent based in Manhattan.
Because there are so many options, Ardleigh recommends comparing at least two different tenure terms (like 20 and 30 year terms) from at least three different insurance companies. This allows you to compare costs between different companies and levels of coverage, she said.
A lot of people worry about the cost, but if you were offered severance pay, you might consider using some of it to buy an individual life insurance policy, Mitchell says.
Plus, you might find life insurance more affordable than you think. This is especially the case if you choose to purchase term insurance. It is recommended by many experts over whole life insurance, in part because term policies are generally more profitable.
If your budget is tight, don’t worry about the next 30 years; Think about the next steps and what you need to do to close the gap between now and when you’re likely to have a job and perhaps have other coverage options, says Ardleigh. If budget isn’t an issue, it would be wise to lock in long-term coverage while you’re young and healthy.
If I choose an individual life insurance policy, what coverage do I need?
Everyone wants a magic number, but it depends on factors such as the number of children and their ages, your spouse’s employment status and salary, debts, assets, cash flow, and how much money you have. have set aside for retirement, according to Carol Petrov, vice president and senior relationship manager of Kendall Capital, a registered investment advisor in Rockville, Md..
Yet, as a rule of thumb, Ardleigh, the insurance broker, recommends that people consider purchasing enough insurance to create an income stream that would replace 50-75% of their income, as well as paying off 50% or more. debts and obligations such as mortgage and college for the children.
Make sure you keep track of the payments so that any policies you have don’t lapse. If you’re having trouble, call your insurer to see what flexibility there is, if any, says Mitchell, the investment advisor.
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