Did you know that most employee benefits plans include an option for benefits conversion when an employee leaves the organization?
With an aging workforce and more employees approaching retirement, it’s important to be aware of the options for someone when they are leaving a company. And it’s not just for someone retiring – whether a person gives their notice or is terminated, they still have the option to look at conversion of their benefits to an individual plan.
The unfortunate thing is, this often gets overlooked because most employees don’t read their benefits plan handbook in detail. We see it all the time – an employee leaves the company and then goes back to their former employer at a later date because they never knew they had an option to convert their benefits.
Get to know your benefits conversion so you can keep departing employees informed.
1. How Benefits Conversion Works
If an individual has been part of an employee benefits plan at a company and they then leave the organization, conversion gives that individual the opportunity to switch to another policy outside of the group plan.
Here is an example of what this might look like: if an individual has a certain amount of coverage for life insurance, they will be allowed to convert to an individual product. Similarly, for health and dental coverage, departing employees can opt to pick up an individual insurance product for themselves and/ or their family.
Keep in mind that every carrier is different so the situations described here may not be exactly how benefits conversion would work with your plan. Benefits that tend to be included in conversion are:
- Life Insurance
- Accidental Death & Dismemberment
- Disability Insurance
- Critical Illness
- Health & Dental Coverage
The value of an individual’s conversion coverage will vary depending on their age and state of health. Plan administrators should tell the employee to contact the insurance carrier or your benefits advisor directly to find out more.
2. Guaranteed Acceptance but Different Coverage
Employees typically have 30 to 60 days after leaving a group plan to opt into a guaranteed acceptance benefits conversion product. Time frames may vary by carrier. Acceptance is guaranteed for the employee, provided that they apply to convert their benefits within the 30 to 60 days as dictated by the carrier’s policy.
Guaranteed acceptance means that the individual does not need to complete any medical questions. No matter what their health status is, they will be approved for coverage. This can make benefits conversion very appealing to an employee leaving the organization. However, what’s essential for them to understand is that just because they opt for conversion, does not mean that they will have the exact same coverage under their individual product. For example, they may pay higher premiums and have lower coverage for benefits like prescriptions and paramedical coverage.
3. Benefits Conversion vs. Alternate Individual Plans
Of course, conversion is optional for an employee leaving a company. Employees are free to apply for a different plan either with the carrier of their current employee benefits plan, or another insurance carrier altogether. Doing so could provide them with lower premiums and better overall coverage. But on the flipside, their current state of health is taken into consideration when applying.
There are pros and cons on both sides. Benefits conversion is an excellent option for a person with serious health conditions since they are guaranteed coverage. But, oftentimes conversion products provide less coverage and are more costly. An individual is free to apply for either conversion or an individual plan and a carrier will give the best option they can offer. Some carriers will even look at individual vs. conversion plans to offer up the ideal for an individual based on their unique situation.
Do your employees know about benefits conversion? Consider incorporating an overview about this when you are offboarding an employee so they can look into it. If you have a terminated employee who is retiring or leaving the company for any reason, they should get in touch with the advisor to see what their options are. Contact us for more information about the benefits conversion process and to help determine what’s best for your organization.
