Life insurance is a common employer-provided benefit, and premiums can be fully paid by the company or shared by the employee. How long does life insurance last after termination or leaving a job, though? The experts at Bankrate explain that while most of these policies terminate when that happens, another option may be available.
Does Term Life Insurance Have Cash Value?
Term life insurance is a basic option that covers workers while they are employed. Term life insurance policies offered by employers have no cash value, as explained by the writers at Prudential. Other life insurance policies have cash value, and these are known as universal insurance. Indexed universal insurance has a cash value corresponding to the U.S. stock market, and variable universal insurance allows policyholders to manage underlying investment options. The last choice offers the highest cost, risk and potential for returns.
The group term life insurance definition is this: it is an insurance policy offered to all members of certain groups. In many cases, the group will consist of employees from a company. Group term life insurance policies are also provided to labor unions and membership associations. It is offered as an employee benefit, but it is essential to read the fine print. The benefits might only equal a year or two of salary, so purchasing an additional individual policy might be wise if you have dependents.
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Changing Jobs and Life Insurance Policies
If you leave your job, you can just let the policy lapse; these generally end about 30 days afterward. If you are taking on a new position that offers group term life insurance, you'll want to plan ahead of time for a lapse in coverage. You can do this by contacting the new life insurance provider and asking for the new policy to take effect sooner; you may have to pay for this out of pocket, though.
The soon-to-be-ending policy might be portable, though. Unfortunately, portable policies are not particularly common, but the provider may allow you to change the policy into an individual one. This new individual policy will naturally have a higher rate since the group plans offer bulk discounts to employers. Still, if the insurance provider wants to keep you on as a customer, they might be able to offer you a deal if you decide to continue with the policy.
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How Much Can You Borrow from a Universal Life Insurance Policy?
Universal life insurance is different from the term options because it is permanent. This permanence means that you are covered for as long as you live, but only if you continue to pay the premiums on time and fulfill any other requirements the company might have. Unlike whole life insurance, though, universal insurance premiums can increase over time.
The writers at Value Penguin explain that universal life insurance policies have cash value components separate from the death benefits. How does that work? When the policyholder makes a premium payment, part of that goes toward the insurance cost, and the remainder turns into cash value. That amount is guaranteed to grow to a minimum annual interest rate but could grow faster.
You can use a universal life insurance policy's cash value in a few ways. If you no longer want the policy, you can surrender it to the insurer and receive its current cash value. You can also borrow money from the insurer, using the policy's cash value as collateral. Remember that you can only borrow as much as the policy is worth and must pay interest back on the loan. You can also use the cash value to make your premium payments.
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