When you leave your employer you lose your group life cover. If you don’t get the same benefits from a new employer, it can leave a huge hole in essential cover you need to ensure you have an income if you are disabled or your family is provided for when you die.
But there is a little-used option that maybe available: converting your group life cover into a policy in your own name. This is known as exercising the continuation option. Though the policy will
convert into one that is priced for your age when you leave the group scheme, you won’t be underwritten. This means you don’t have to take any medical tests or answer any medical questionnaires and you won’t get any loadings on your premiums because you have medical conditions such as hypertension ordiabetes or, worse, have cover for these conditions excluded.
The ability to get cover at the life company ‘s best rates for your age maybe one of the industry’s best-kept secrets. Few people take up the conversion option, assurers say. You may think you do not need it because you are moving to a new employer that also offers group life cover. But remember that most group life schemes offer you a standard amount of cover that may not be sufficient for your needs.
Also, your current group life cover maybe a better product for example, offering a monthly income-protection benefit that will serve you better on disability than a lump sum, or cover for a disability that prevents you from doing your own occupation rather than only providing cover when you can’t do any similar occupation. Your employer if your group scheme is standalone or
your retirement fund that offers – group benefits must have chosen to include the continuation option for your scheme, but Reinier van Gijsen, head of pricing at Sanlam Group Risk, says assurers typically do offer this option on all group risk cover except funeral cover.
Hugh Hacking, the GM for operations at Old Mutual Corporate, says your employer or fund agrees to pay the premiums for this extra benefit and these amounts may in turn be deducted from your salary. The conversion option is mainly used by employees not in good health, as they know cover will either be declined or loaded if they have to apply for it with full underwriting. Van Gijsen says take-up is better among highly financially literate employees compared to lower-income earners. Low take-up rates don’t necessarily mean assurers are scoring. The additional premium for the conversion option takes into account an assumed level of the take-up as well as the claims employees exiting the group and taking individual policies tend to make, Hacking says. Van Gijsen says the group life division pays a conversion fee to the individual life division for it to convert the cover and accept you without underwriting.
Schalk Malan, CEO of BrightRock, says if you are in poor health and therefore more likely to claim, the conversion option allows you to access cover you wouldn’t otherwise be able to get or would have to pay more for in the market. Policyholders benefit the most from being able to convert their group risk cover to an – individual life policy even when take-up is low, he says. Simon Nicholson, head of product and analytics at Simply, says Simply does not charge an additional premium for giving employees the ability to convert to individual cover. The continuation benefit is typically priced the same as the standard life policy, so it only costs the insurer to guarantee you cover, even if you are in poor health. This is a risk the assurer is exposed to anyway through the group product, he says.
Van Gijsen says the profile of the group changes very slowly, so the average rate does not change, but the premiums you pay as an individual may rise steeply depending on the a greed rate of increases for the premiums. For example, you may have an age-rated premium increase that results in your premiums rising more steeply with your age and not just in line with the inflation related increase in benefits. When you convert your group life cover, you may see a big jump in premiums, but you may still find the converted cover starting off at a lower rate than cover that is underwritten.
Nicholson says the cover on conversion is guaranteed and there will be no exclusions, loadings or waiting periods unless you had these on additional cover you bought over and above the group cover offered without underwriting. You will typically only be denied a conversion if your scheme does not have such an option or if you joined the scheme less than a year before, Van Gijsen says.
Hacking says after leaving your job, you typically have a period in which to convert for example, 60 days. You should be sent a policy document outlining all the benefits, terms and conditions and how future premium increases will be applied. When you leave your job, don’t expect the human resources department or a Google search to provide the answers. Use a financial adviser who will explore all options, including the conversion option as it can be a very valuable benefit, Van Gijsen says.
Nicholson says generally it is better to take the continuation option, since you should get the insurer’s standard premium rate for your age, gender and other considerations without having to do any underwriting.
This article was originally written by Laura du Preez and published in the Business Day on 23 July 2019.