Employee BenefitsGroup Life InsuranceGroup Life Insurance Conversion in Canada - The Complete Guide

Group Life Insurance Conversion in Canada – The Complete Guide

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If you currently have group life insurance through your employer, what happens to that coverage if you leave your job or retire? The good news is that, in most cases, you can convert your group life insurance to an individual policy. This process is known as “group life insurance conversion.”

Converting your coverage allows you to maintain life insurance at a similar level without undergoing new medical underwriting. For people with pre-existing health conditions, conversion can ensure continued coverage.

In this guide, we’ll explain everything you need to know about group life insurance conversion, including:

  • What group life conversion is, and how it works
  • When you may want to convert your policy
  • Your available conversion options
  • How much it costs to convert coverage
  • Policy limits and restrictions
  • The step-by-step conversion process
  • Frequently asked questions

A solid understanding of group conversion will allow you to make an informed decision about maintaining your valuable life insurance benefits.

What is Group Life Insurance Conversion?

What is Group Life Insurance Conversion? ebs
What is Group Life Insurance Conversion?

Group life insurance conversion refers to switching your workplace group life insurance policy over to an individual policy when you are no longer eligible for the group plan. Many employers provide group life insurance as part of their benefits package. This coverage is typically life insurance equal to 1x or 2x your annual salary.

Group life insurance offers several advantages, including:

  • Premiums are subsidized by your employer, making coverage more affordable
  • Simplified underwriting means you don’t need a medical exam to qualify
  • Premiums remain level as you age
  • Coverage can be continued into retirement in some cases

However, most group life insurance ends if you leave your job or retire. This is where conversion comes in – you can transfer your group policy to an individual plan with the same insurance company or employee benefits providers such as Manulife, IA Financial or Canada Life. The key benefit is that you don’t need to provide evidence of insurability or undergo new underwriting. The insurance company must make conversion coverage available due to your participation in the group plan.

Conversion eligibility, costs, and options vary by state and insurance company. But in general, you must apply for conversion within 31 days of terminating employment and meet other requirements outlined in your certificate of coverage. Overall, conversion allows you to extend your group life insurance benefits under individual coverage.

Source: https://www.rbcinsurance.com/files/00105/file-105874.pdf

How Group Life Insurance Conversion Works

Here’s a quick overview of how group life insurance conversion works:

  • Your group life insurance coverage is ending because you are leaving your job, retiring, or losing eligibility due to reduced work hours.
  • You can apply to convert your group policy to an individual policy with the same insurance company within 31 days of your termination date.
  • The insurer must make conversion coverage available without requiring medical underwriting or proof of good health.
  • You select a type of individual life insurance policy to convert to, such as term or permanent life insurance.
  • Your premiums, coverage amount, and policy type may differ from the group plan. But generally, you can convert up to the amount you had under the group policy.
  • Once approved, your new individual policy goes into effect, allowing you to retain life insurance benefits without a coverage gap.

The critical advantage of conversion is that insurance companies cannot deny you individual coverage or rate you higher based on pre-existing medical conditions. When leaving the group plan, you essentially “lock in” coverage at your age. Converted policies tend to have higher premiums than medically underwritten individual policies, which we’ll discuss more in the cost section of this article.

Overall, group life insurance conversion allows you to extend your workplace coverage with fewer hassles and no lapse in protection.

When Should You Consider Group Life Insurance Conversion?

When Should You Consider Group Life Insurance Conversion? ebs
When Should You Consider Group Life Insurance Conversion?

There are several situations when converting your group coverage to an individual policy could make sense:

Leaving Your Job or Retiring

Job loss or retirement is the most common trigger for group life insurance conversion. Since most employer-provided coverage ends when you leave, conversion allows you to maintain a similar policy. This prevents having to shop for new insurance during a transitional period. Conversion may benefit retirees who still need life insurance but don’t want to pay higher age-rated premiums.

New Employer Has No Life Insurance

Changing jobs is another scenario where conversion should be considered. If your new employer doesn’t offer group life insurance, converting allows you to preserve your previous amount of coverage. You may only need to convert coverage for a short time before becoming eligible for new group benefits.

Waiting Periods for New Employer’s Coverage

Even if your new job offers life insurance, there may be a waiting period before you become eligible. Group plans often impose 30, 60 or 90-day waiting periods for new employees. Conversion lets you bridge this gap temporarily to avoid being uninsured. You can cancel the converted policy once your new work coverage kicks in.

Developing Health Conditions

Group life insurance conversion also provides flexibility if your health changes. Converting while still employed locks in coverage; you may not qualify for later. If you develop a severe illness like cancer or heart disease, buying new coverage could be difficult and expensive. Conversion allows you to maintain your current amount of insurance regardless of any new medical conditions.

Avoiding Higher Premiums with Individual Underwriting

In addition to guaranteed coverage, group conversion means avoiding potentially higher premiums. If you had to qualify for a new individual life insurance policy medically, the insurer would factor in your age and health. Conversion sometimes allows you to essentially “freeze” your rates at the group plan amount until age 70. This can mean substantial savings over individually underwritten coverage for people with health issues.

What Are Your Group Life Insurance Conversion Options?

When you convert your group coverage, you must select a type of individual life insurance policy. The options may vary, but usually include:

Term Life Insurance Conversion

Many people choose to convert their group term life policy to an individual term life policy. This maintains temporary coverage for a set period. Term lengths are typically available for conversion from 1 year up to 30 years.

Benefits of term conversion include lower initial premiums and the ability to match the length of coverage you had under the group plan. The maximum amount you can convert may also be higher with term insurance. If you still need life insurance as the term policy nears expiration, you can usually convert again to permanent insurance without underwriting.

Read more: Group term life insurance in Canada

Permanent Life Insurance Conversion

Converting to a permanent individual life insurance policy is the other main option. Whole life, universal life, and variable life policies fall into this category. Permanent insurance provides lifelong coverage and can accumulate cash value.

Benefits of permanent conversion include:

  • Premiums that remain fixed.
  • Guaranteed death benefits.
  • The potential to accrue cash value that can be borrowed against.

Permanent policies also give you the security of life insurance for life rather than a set term. The tradeoff is that the premiums are higher than those of term insurance.

Accidental Death and Dismemberment (AD&D) Insurance

Some group life insurance plans include AD&D coverage and the primary death benefit. AD&D insurance pays out if the insured dies or suffers dismemberment due to a covered accident. When converting group life insurance, you may also be able to convert any AD&D coverage you have.

How Much Does Group Life Insurance Conversion Cost?

One drawback of conversion is that premiums are typically higher than buying new individual coverage. There are a few reasons for the increased cost:

  • No medical underwriting – The insurer is taking on more risk by issuing coverage without a new health screening. People who have developed health conditions can still convert their full policy amount.
  • Smaller risk pool – You’re moving from a large group plan to an individual policy with just yourself covered. Insurance works best when risk is spread across a bigger pool of people.
  • Age at conversion—Converting later in life means age-adjusted premiums will be higher than when first obtaining coverage in your 20s or 30s.

Actual conversion premiums will vary based on the type and amount of insurance, your age, the insurer, and other factors. However, generally, expect to pay from 25% to 100% more compared to medically underwritten policies.

These premiums are just high-level estimates. Work with your insurance agent or broker for an accurate quote for your situation.

Your best approach is to compare conversion premiums to the cost of new coverage. If the converted policy is considerably higher, you may want to request individual coverage as a medically healthier option.

What Are The Coverage Limits For Converted Policies?

What Are The Coverage Limits For Converted Policies? ebs
What Are The Coverage Limits For Converted Policies?

Group life insurance conversion comes with specific limits on the amount and type of individual policy you can purchase. Some typical restrictions include:

Maximum Conversion Amounts

Most group life insurance plans limit the maximum you can convert to $200,000 or less. For example, if you had $500,000 in group coverage, you could only convert $200,000 to an individual policy. Reviewing your certificate of coverage will reveal the specific amount your employer’s plan allows. State laws sometimes mandate higher conversion amounts, too.

Source: https://www.groupbenefits.ca/group-insurance/products-and-services/group-life-insurance

In Quebec, the maximum conversion amount is $400,000. Other provinces may have higher limits. Your broker can provide details on requirements based on your province of residence.

Source: https://www.sunlife.ca/en/choices/continuity-of-life-insurance-after-leaving-your-employer/

Age Cap on Conversion

While periods vary, most conversion rights end around age 65 or at death. You usually cannot convert group life insurance once you pass the maximum age stated in the policy. Checking your coverage documents will show the age limit that applies.

Source: https://www.ucalgary.ca/hr/sites/default/files/teams/229/manulife-grp-ben-conv-form.pdf

Type of Conversion Policy Available

Group plans usually let you convert to either term or permanent life insurance. This allows you to select the correct type of individual policy for your needs. Conversion is typically not available for specialty products like universal or survivorship life insurance.

How Does The Group Life Conversion Process Work?

Converting your group coverage involves a few simple steps. Here is an overview of the typical conversion process:

Your group insurance is ending – You retire, leave your job, or become ineligible for the group life plan. Conversion must happen within 31 days of termination.

Contact your employer’s HR department – Ask for a copy of your group life certificate, which outlines conversion details. Confirm eligibility, available amounts, and any other requirements.

Review conversion options with a broker: Work with an independent broker to explore the types of individual policies available and estimated costs.

Select an individual life insurance policy—For your conversion, Choose a term or permanent life insurance policy. Your broker will recommend the best options.

Complete policy application: Work with your broker to complete the new application and submit any required paperwork.

Application processing – The life insurer reviews your application and issues the new individual policy. This usually only takes a few weeks.

The new policy goes into effect – Your life insurance policy should take effect seamlessly after your group coverage ends. Premium and coverage amounts may be different.

The conversion process is meant to be simple for the policyholder. Your employer and broker will assist with the details so that you end up with continued coverage. Be sure to start the application as soon as your termination date is known since delays could risk missing the 31-day window.

FAQs About Group Life Insurance Conversion

Let’s review some of the most common questions about group life insurance conversion:

Can I convert my group life insurance at any time?

No, conversion is only an option when leaving a job or losing eligibility for your employer's group plan for another reason. Insurers do not allow conversion to get a lower premium.

Does my dependents' coverage convert, too?

Most group life insurance plans also allow you to convert coverage for dependents. Their certificates of coverage will outline specific conversion details. Dependents can convert whether or not you decide to convert your policy.

Can I increase the coverage amount when converting?

Usually, you cannot increase the amount of insurance when converting your group policy. The individual policy amount will be equal to or less than your group life benefits. However, some group plans may allow a small increase in coverage, such as 10%.

What is the time limit for converting coverage?

You must apply for conversion and pay the first premium within 31 days of your group insurance termination. After 31 days, you lose the conversion option. A few plans provide more extended conversion periods, such as 60 days.

Can I convert group AD&D insurance?

If your group plan includes supplemental AD & D coverage, you can convert this benefit to your basic life insurance. Converted AD&D policies have the same coverage limits and restrictions as life insurance conversion.

What if I don't want to convert but need new life insurance?

You always have the option to apply for life insurance on your own if you're in good health. While conversion is guaranteed, new individual policies often have lower premiums and better features if you medically qualify based on underwriting.

How do I get a group insurance conversion quote?

Contact the insurance company that provided your group benefits to get a premium quote for converting your coverage. Your employer's benefits manager may also be able to provide rate estimates before applying.

Conclusion

Losing your job-based group insurance doesn’t mean you have to lose life insurance benefits, too. Conversion provides a seamless transfer of coverage from an employer plan to an individual policy. While premiums are higher, you avoid underwriting, which can be a “safety net” protection if health conditions develop.

Group life insurance conversion is simple and convenient for most people who still need life insurance when leaving a job. ebs
Group life insurance conversion is simple and convenient for most people who still need life insurance when leaving a job.

Converting group coverage is simple and convenient for most people who still need life insurance when leaving a job. Just be sure to pay close attention to conversion requirements like application time limits and maximum policy amounts. Working with an experienced insurance broker can streamline the process as well.

While only some people need to continue life insurance into retirement, group conversion remains an excellent way to extend workplace benefits if the need exists. Understanding how it works empowers you to make intelligent decisions about protecting your family’s financial security.

Article Source

At Ebsource, we empower Canadians to make informed benefits decisions. Our impartial insights come from financial experts aligned with industry best practices. We source accurate data from reputable government agencies like Statistics Canada. Through rigorous research of major providers, we offer tailored recommendations matched to individual needs and budgets. Ebsource upholds strict editorial standards and transparent sourcing. Our goal is equipping Canadians with trusted knowledge to confidently choose the right benefits. We aim to be Canada’s most dependable resource for savvy benefits guidance.

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