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 may be available to you: 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 or diabetes or, worse, have cover for these conditions excluded.

The ability to get cover at the life company’s best rates for your age may be one of the industry’s best-kept secrets. Few people take up the conversion option, life assurers say. 

You may think you do not need it because you are moving to a new employer that also offers group life cover. However, 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 may be 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 cannot do any similar occupation.   

Your employer — if your group scheme is a standalone one 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 for 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.

He says the conversion option is mainly exercised by employees who are not in good health, as they know cover will either be declined or loaded if they have to apply for cover 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. Hacking says the additional premium for the conversion option takes into account an assumed level of the take as well as the claims employees exiting the group and taking individual policies tend to make.   

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 are the ones who actually benefit the most from being able to convert their group risk cover to an individual life policy — even when the take-up is low, he says.    

Why group life cover is cheaper

The difference between group life and individual life premiums depends on a variety of factors, but typically group life premiums are much cheaper than those you will pay when taking out a policy in your own name, BrightRock CEO Schalk Malan says. 

This is because the premiums are set at an average rate per rand of cover for the group, which means there are cross-subsidies from those who are younger to those who are older, across job categories and from the healthy to the sick, Sanlam’s Reinier van Gijsen says. 

In addition, the cover is compulsory, Old Mutual’s Hugh Hacking says. Typically your cover is linked to your salary – for example, you may enjoy three times your annual income as a benefit if you die or are disabled.

When you take out cover in your own name, the assurer will price your premiums in line with your risk profile determined by factors such as your income, your health, your smoker status and any hazardous activities in which you partake. 

Simply’s Simon Nicholson says typically the margins and expense loadings on a group are much lower than they are on individual policies. For Simply, the cost can be as much as 50% or more lower for a group policy compared to an individual one, he says.

Van Gijsen says there are cases where a young, healthy, highly qualified individual such as an engineer may get a better rate for life cover as an individual, but most people are likely to get better rates in the group scheme.

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. 

He says 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. 

Van Gijsen says the profile of the group typically changes very slowly, so the average rate typically does not change, but the premiums you pay as an individual may rise steeply depending on the agreed 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 your 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 for which you are underwritten.

Nicholson says on conversion the cover 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 you with answers about your life and disability cover. Use a financial adviser who will explore all options, including the conversion option as it can be a very valuable benefit for some people, Van Gijsen says. 

Nicholson says generally it is better to take the continuation option, since you should get the insurer’s standard (that is, best) premium rate for your age, gender and other considerations without having to do any underwriting.