Converting Group to Individual Insurance‍

While not mandatory, many Canadian employers provide group insurance coverage to their employees. Common group insurance coverages are life insurance and health insurance.

Where group life insurance helps replace the loss of your income in the event of death, group health insurance aims to supplement provincial health insurance.

Group insurance coverage is a valuable workplace benefit, but it is tied to your job. 

So, if you’re leaving your employer, must you give up the employer-sponsored cover?

The answer is NO. 

You have the option to convert it to an individual plan through a process that is aptly called group insurance conversion. Here’s what you need to know. 

Group Insurance Conversion – What is it?

When an employee leaves their job, they have the option to migrate their group life or health insurance to an individual policy. This process of converting to an individual plan is called group insurance conversion. 

You can opt for group insurance conversion when: 

• You retire 
• You lose your job
• You move on to another job

Keep in mind the conversion has to be done with the same insurance carrier. In addition, while you won’t have to undergo new medical underwriting, your premium rate will go up. 

Because insurance carriers cannot evaluate the risk of extending coverage to someone who might have a pre-existing condition, they must safeguard their interests. They do so, by charging higher premiums when converting group policies.

What are the benefits of converting group life insurance to an individual plan?

Wondering whether you should convert group life insurance to individual coverage? Well, here are the three key benefits you’ll enjoy.

No life insurance medical exam

Conversion to an individual plan doesn’t require proof of insurability. This means the insurer cannot turn you down because of any recent changes in health, nor can it factor your health when calculating the new premium rate. For someone whose health has deteriorated since the start of group coverage, this assurance is no small benefit.

If there’s no policy conversion option and they have to shop for a new policy, they may get turned down, receive a seriously high premium, or get approved with exclusion. 

Of course, even without new medical underwriting, your new premium rate will be higher. However, that’s because you are now older than when you first took out group coverage.  

Here’s a real-life example that clearly illustrates the benefit of group insurance conversion.

Martha, age 50, has recently changed jobs. Her new employer doesn’t offer group life insurance, but her previous company did. Unfortunately, a couple of years back Martha was diagnosed with multiple sclerosis — a condition that may make it difficult for her to secure new coverage at an affordable rate. 

Thankfully, the insurance conversion clause ensures Martha will enjoy continued insurance coverage. As she settles into a new job, she can rest assured in the knowledge that her family will receive financial support in the event of her death.

Portability

Individual life insurance plans are not tied to your job. Your coverage continues regardless of your employment status, as long as you pay the premiums. 

Customization options

Depending on your insurer and new policy, you may be able to tailor coverage to your needs by adding riders. Riders are add-ons that offer additional benefits or coverage beyond the basic policy. 

What are the benefits of converting group health insurance to an individual plan?

Your new health insurance plan will be portable. It may also be more customizable than group coverage. Additionally, there will likely be no waiting period for pre-existing illness. 

If you have a pre-existing condition and convert to an individual policy, it will be covered from day one. In contrast, a new individual policy typically comes with a two-year waiting period for pre-existing illnesses.

Leaving a group life insurance plan – key things to consider?

When leaving a group life insurance plan, you’ve the option to convert to an individual plan. This move has its benefits — there’s no two ways about it. But there are some drawbacks as well (like higher premiums even if you are in good health, a cap on how much you can convert, etc.).

Whether or not group insurance conversion is right for you largely depends on your health and personal situation. 

Here are a few key things to consider when considering insurance conversion:

• You won’t have to undergo new underwriting, but the cost of coverage will go up 
• Generally, the maximum amount allowed for conversion is $200,000, but the limit may vary
• The conversion option is available only for a short period, typically up to 31 days from the date of employment termination
• You may not be able to convert optional insurance

Consider the following example: 

Philip, a 45-year old marketing manager, has group life insurance coverage. The basic coverage is two times his annual salary, which comes roughly to $230,000. In addition, Philip has bought top-up coverage of $330,000. 

If Philip leaves his job, the maximum amount that he can convert will likely be $200,000. Plus, he forgot the optional coverage. 

What should Philip do? Should he convert group life insurance to individual coverage? Or should he shop for a new policy?

What Philips should do depends largely on such factors as his health and current insurance needs. 

If he is in reasonably good health or has financial obligations that call for a safety net bigger than, buying a new policy is a smart decision. He might be able to secure a better rate and coverage amount that matches his present needs. 

On the other hand, if Philip has a serious pre-existing illness, insurance conversion might be a good idea. 

Leaving a group health insurance plan — key things to consider?

Key things to consider when converting group health insurance to a personal plan are:

Assess Health Needs

Do you have a serious pre-existing condition, like rheumatoid arthritis? If so, then consider using the group insurance conversion option. 

The reason is simple: a new plan will have a waiting period, which could be anywhere between two to four years. During this period, your existing treatment will not be covered. 

However, if you have no pre-existing illness and require more comprehensive coverage than what your group plan offers, a new individual plan might be in order. You can get as much coverage as you reasonably need and tailor the policy to your current needs. 

Finances

Health needs aside, you may also want to look at the difference between the cost of a group policy conversion and a new policy.

Consult an Insurance Expert

If you’re still in two minds, an insurance expert can help you assess your needs objectively and make the right decision. 

Reasons to convert group life insurance to individual

People consider group insurance conversion for various reasons, the most common ones being: 

• To keep coverage if the new employer doesn’t offer group benefits
• To ensure there’s no waiting period for pre-existing conditions
• To ensure continuity of coverage (a serious pre-existing illness may disqualify you from getting a new life insurance or health insurance plan)

What is the process of converting a group plan?

Even though converting to an individual policy is a simple, straightforward process, a few things must be kept in mind. 

1. Eligibility

You can apply for conversion only within a specific time frame. The typical window for insurance conversion is 31 days from the date on which the group coverage ends. 

2. Coverage Amount

You may or may not be able to convert all of your group coverage to an individual policy. Read the policy document or speak with the insurer to find out the details. 

3. No Medical Underwriting

You will have to neither take a paramedical exam nor answer a medical questionnaire at the time of conversion. To put it in other words, your current health status will have no impact on your new premium rate.

4. New Premium Will Be Higher

Life insurance and health insurance premiums go up as we age. So, expect a hike in the premium rate when you apply for policy conversion.  

5. New Coverage Will Be Different

The new coverage will be different from the employee cover, so don’t forget to read the policy document to ensure you understand the finer details. 

What is the difference between porting and converting group benefits?

Porting in insurance parlance means you take the coverage with you after employment ends. Conversion, in contrast, means changing to an individual policy. 

The following table highlights the key differences between the two. 

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Conclusion

You don’t have to give up group life insurance or health insurance benefits when you leave your job. If you want, you can convert it into an individual plan.

Like with most things in life, this move has both pros and cons. If you still are not sure whether policy conversion is the smart thing to do, let Dundas Life help you. 

Our experts will take time to understand the dynamics of your unique situation and offer unbiased advice. We will also provide you with free, no-obligation quotes from multiple insurance providers should you decide a new policy, not policy conversion, is in your and your family’s best interests. Or schedule a call with one of our advisor today.

FAQs

Why should I convert my group life insurance to an individual policy?

Converting to an individual policy after leaving or losing your job allows you to maintain continued coverage without submitting proof of insurability. 

How long do I have to convert a group policy to an individual policy?

Typically, you must apply for policy conversion within 31 days from the date group coverage ends. Some insurers may have a longer window of up to 60 days. 

What are the disadvantages of converting group life insurance coverage?

When you convert an employer-sponsored policy to an individual plan, your premium invariably increases.

What information is needed to convert my group plan into an individual policy? 

If you are converting a group life insurance plan to an individual policy, you typically need to provide only your personal details and group plan information.

Personal details you need to share include your name, date of birth, address, and contact information. For converting to a personal health insurance plan, you may also have to share details regarding pre-existing conditions and recent medical treatments.