Do I lose life insurance if I leave a company?
[social_share]The term, “company life insurance,” covers three different types of policies which tend to be treated differently if the person were to leave the company. These three policies are key man insurance, company life insurance purchased by the employee, and life insurance provided as part of the compensation package.
Key man insurance still continues if the covered employee leaves the company. This insurance is designed to cover certain key employees, who are vital for the company’s financial health, and it pays the company rather than the employee’s beneficiaries, which is why it’s often called “dead peasant” insurance.
Often the company is no longer interested in continuing this life insurance policy after the employee has left the company, as he or she no longer plays a key role on the team. In these cases, the departing employee may be able to buy the life insurance from the company at a relatively cheap price, and it may offer sound value as it’s usually purchased over a longer term.
Company life insurance purchased by the employee will also tend to continue after the employee departs. Many large employers offer their employees the opportunity to buy life insurance at a very cheap rate and without a medical examination through bulk buying techniques. This policy will usually leave with the employee. However, these policies usually only last a year and so can run out quickly.
If the life insurance has been purchased with an element of salary sacrifice, this situation can be less clear cut. The salary sacrifice may have been structured so that the company takes out the life insurance policy, which is usually done to make the process more tax efficient. In this case, the life insurance stops when the employee leaves the company, and this question should be asked of the insurance provider.
As well, if the life insurance is part of the employee’s compensation package, it rarely continues beyond the departure date from the company’s employ.
