How to Maintain Life and Disability Insurance Coverage If You’re Furloughed or Laid Off

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One of the unfortunate side effects of the high unemployment rate that has resulted from the coronavirus pandemic is the loss of life and disability insurance for many people furloughed or laid off from their jobs. 

Many employees receive low- or no-cost group life and disability coverage through their workplace. When they’re let go or furloughed, they often lose this coverage — or if they’re able to keep it, the cost rises substantially and it becomes unaffordable.

COBRA Doesn’t Apply

Businesses with more than 20 employees are required by law to offer furloughed and laid-off workers continuing health insurance through the Consolidated Omnibus Budget Reconciliation Act of 1985, better known as COBRA. However, COBRA doesn’t apply to life and disability insurance where the rules for continuing coverage depend on company policy, the terms of the group plan and applicable state law.

Some group plans allow employers to offer continuing coverage to furloughed workers while others allow laid-off workers to convert group plans to individual plans. In this scenario, terminated employees typically pay the entire cost of insurance directly to the insurance company, bypassing their former employer.

If you are facing a furlough or layoff, you should talk to your human resources department about what your options might be for continuing your life and disability insurance. In particular, be sure to ask if there are any differences in continuing coverage based on whether you’re furloughed or laid off. Also inquire about any additional costs you may have to bear in order to continue your coverage.

Weighing the Decision

If you’re offered the opportunity to convert a group disability policy to an individual policy, you should probably do this if you want to maintain coverage. In general, you cannot purchase disability insurance on your own if you’re working less than 30 hours per week so conversion could be your only option for keeping coverage.

The decision isn’t quite as simple when it comes to life insurance. Start by taking a close look at how much coverage you’re receiving via the group plan at work. If you’re receiving this coverage at no out-of-pocket cost, then it might be relatively low, such as $10,000 or $20,000. In this case, you might want to inquire about upping this amount. Of course, this would raise the premium and the insurer might also require a physical exam to determine your current state of health.

Next, take some time to research and shop for individual life insurance policies. If you’re relatively young and healthy, you might be able to find a better deal out in the open marketplace than the one being offered by your former employer’s insurance company. You may also have more options to choose from when shopping around, such as different term lengths and coverage amounts.

It’s a good idea to get quotes from at least two or three different insurers at different term lengths and coverage amounts. Then compare these to what you can buy if you convert your former employer’s group insurance policy to an individual policy to see what’s the best overall deal from a price, coverage and term perspective.

How Much Coverage Do You Need?

Perhaps the most common question people have when buying life insurance is how much coverage do they need? There’s no one-size-fits-all answer, but one approach is to purchase enough coverage to replace your family income for a certain number of years. For example, if your family income is $100,000 a year and you want to make sure your spouse has at least five years of steady income if you die, you’d buy $500,000 worth of coverage.

Another approach is to buy enough insurance to create an income stream that replaces a certain percentage of your income if you die, such as 50 percent or 75 percent of your income, along with enough money to pay off a percentage of your debts. In particular, you might want to purchase enough coverage so your spouse can pay off your mortgage if you die, which would likely reduce his or her monthly living expenses considerably.

Give us a call if you have any questions about continuing your life or disability insurance coverage if you’re facing a furlough or layoff. We can help you plan the best strategy for your situation.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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