In the previous parts of this series (Part I, Part II, and Part III) we discussed the financial options in a typical termination package. Now let’s focus on group benefits and life insurance continuation.
When you are actively working, your employer might offer you a group benefits package. The benefits range widely from one employer to another but yet cover very similar areas:
- Prescription Drugs
- Dental Benefits (routine and sometimes major)
- Health benefits (semi-private hospital accommodation, massage therapist, orthotics etc.)
- Life Insurance
- Disability Insurance
- Critical Illness Insurance
When your employment is terminated, you lose your group benefits. Even though your transitional period between losing one job and finding another could be relatively short, the need for health related benefits is permanent. You don’t want to receive a major medical bill when your regular income is not even there. You cannot afford to have a gap in coverage. There is a huge market for individual and family benefit packages. If you want to find one, you definitely will. However, it is important to shop wisely.
First steps to take
If you had group benefits at work, your termination package should clearly state when your benefits will terminate. Usually the date is far enough into the future to allow you to find an alternate solution. Be sure to mark the benefit termination date on your calendar, it is important.
If your spouse has group benefits at work, his/her employer should be notified about you losing the coverage. Then your spouse can complete the necessary paperwork to ensure you are covered as a spouse/dependent. IMPORTANT – Your spouse’s employer has to be notified within 30 days of your benefits terminating.
If your spouse doesn’t have group benefits, or there is no spouse, you have to analyze your insurance needs and decide what type of coverage you should start looking for.
A VERY IMPORTANT CONSIDERATION – you may qualify for an individual benefit package without a medical questionnaire and additional medical underwriting if you apply for within 60 days after losing group benefits. You don’t even have to go with the same insurance provider that supplied your group benefits. Any other major insurance provider will honour this 60-day period without the medical requirements rule. This gives you an opportunity to shop around. Now, let’s go over the major areas group benefits provide.
- Ontario has the Ontario Drug Benefit (ODB) Program that covers most prescription costs for seniors. You can find details by accessing the link below: http://www.health.gov.on.ca/en/public/programs/drugs/programs/odb/odb.aspx
- Benefit plans may cover costs for everyday medicinal needs and separately for catastrophic events (like cancer). If you feel that you are generally healthy and don’t want to spend money on individual prescription drug insurance – don’t rule out the catastrophic coverage option. It is not expensive and covers your medical bills above a certain threshold (could be $5,000 or higher). However, it’s upper limit is very high (could be hundreds of thousands or unlimited)
- Benefit plans mostly cover the generic drug equivalent. If you need a brand name medicine that cannot be substituted, you have to pay special attention to this feature.
- Dental options in individual packages are expensive. If you only require regular cleaning appointments, you will be better off paying out of pocket.
- Dental benefits are usually divided into routine and major components. Major dental insurance is VERY costly and mostly covers not more than 50% of the costs.
- Some routine dental packages do not cover white fillings. This feature does not really affect the price, but could be a major issue for some people.
- They vary widely from one provider to another in both price and features.
- Some insurance providers group hospital benefits separately.
- The rule of thumb for Health Benefits is – it is a ‘must have’ option for the people with an existing medical condition requiring treatment. It brings back a very important point: if you have the existing condition that requires treatment, make sure you apply for individual coverage within 60 days from losing your group benefits. In this case your medical history will NOT be reviewed.
- Every group benefits package has a life insurance component.
- Any group benefits coverage on termination provides the opportunity to convert group life insurance to individual life policy without evidence of insurability.
- Generally speaking, if you’re a healthy non-smoker, it makes sense for you to apply for a personal life insurance policy through a life insurance company because it may very well cost less than the group conversion option. Your termination package will specify the date on which you must convert your group insurance by. Be sure to leave yourself enough time to apply for individual insurance just in case you need to activate the group insurance conversion.
- If your medical history contains major health problems (even if you fully recovered from them many years ago), the group life insurance conversion could offer you the best deal.
- Do not mix the life insurance policy with accidental death and dismemberment (ADD) insurance. ADD is very inexpensive and there is a reason for it – in order to qualify for the payout, there are specific limitations (set out in the terms and conditions of the policy). General life insurance policies do not have such limitations and that is why they may be the better option for you.
- If you decide to convert your group coverage to an individual life insurance policy, it will create a separate contract. You will not need to look for a life insurance component inside individual health, drugs, and dental insurance packages.
- Many group benefit packages offer disability insurance. Disability insurance pays you a specified monthly amount if you become disabled.
- This specified amount is related to your income. That is why disability insurance CANNOT BE CONVERTED when your employment ends and your income terminates.
- It makes sense to explore the options of getting an individual disability insurance policy while your income is still in place. Once approved, an individual policy will always be valid, even if your income decreases or drops down to zero (as long as your premium payments are up to date).
- Some group insurance packages have critical illness insurance. It pays a specified lump sum on the diagnosis of heart attack, stroke, or a life threatening cancer (and sometimes other illnesses)
- If you have critical illness coverage in your group benefit package, you will have an option to convert it.
Now, with this in mind you are ready start shopping around for the ideal individual insurance package. There are quite a few variables affecting the price; all insurance companies apply them differently. That is why professional help is already included in all individual health, drugs, and dental packages – whether you use it or not. In other words, if you call your financial advisor and ask them to find the best price for your ideal package, he/she will give you the same price that you would have found on the internet yourself. There’s no additional cost or agent commission.
That is why, even if you are the type of person that changes the oil in your own car and manages ETF’s inside your own RRSP – it’s in your best interests to use professional help when searching for individual benefit packages.
This concludes my series on termination packages. Unfortunately, it is impossible to include and discuss all individual circumstances, benefits and features. The moment of lay-off or retirement often presents us with serious life challenges that nobody else but you can resolve. The termination package should NOT be one of them. There are people who can help you and allow you to focus on the important matters: spending time with your family, finding a new job, or even discovering a whole new path in life.
Changing your job status is not the end – it is a new beginning!
VLAD SOLOKHINE, CFP®