In today’s world, the economy has become very dynamic due to the high inflation rates, especially after the COVID-19 pandemic. So, any sized business can fail. Hence, a question may arise in your mind ‘What happens to your life insurance when a factory closes?’
Through this guide, we will try to clear that doubt from your mind considering all the various angles. But, first, let’s start from the very basics. An insurance plan offered by your employer is a type of agreement that happens between the employer and the insurance company. As a part of this agreement, the insurance company agrees to provide insurance coverage to the group workforce.
The employees need to fill in the required documents and apply for these policies by getting the premiums automatically deducted from their monthly payslips. Not only are life insurance policies, but a lot of other policies are also offered to the employees that include health, disability, etc. However, we will keep this discussion limited to life insurance policies only.
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Table of Contents
- 1 What Happens To Your Life Insurance When A Factory Closes ?
- 2 What Happens to My Life Insurance if The Company Is Sold ?
- 3 Can I Cash Out My Group Life Insurance Policy ?
- 4 Do You Lose Your Life Insurance When You Leave Your Job ?
- 5 What Happens to Your Life Insurance When You Retire ?
- 6 Final Thoughts !
What Happens To Your Life Insurance When A Factory Closes ?
Whenever someone joins a new-company or new organization they are entitled with a group insurance policy, which covers the direct employee as well as their dependants. Maximum you can cover 4 dependants.
The coverage, number of dependant and other facilities differ from one plan to other, however in many cases the organization or factory provides it to all employees. The minimum premium amount is provided by the factory itself. If someone wants to increase their coverage then they can increase it by paying an additional premium amount from their pocket in the same plan.
Now the question is What Happens To Your Life Insurance When A Factory Closes ?
There could be 3 options.
i) Close the policy: Once the factory is closed, the policy will be forfeited and you will loose all the benefits you are entitled with.
ii) Port the policy to a different plan: If you are joining a new factory or new organization, then you can discuss with the new employer and request them to port the policy to a different group plan. In this way you would not loose the existing benefits.
iii) Convert the policy: In many cases employees pay extra premium amount to get extra coverage. So better discuss with the HR department of new factory and change the policy to an individual life insurance policy.
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What Happens to My Life Insurance if The Company Is Sold ?
There are two categories of bankruptcy law that can be filed by a company, often referred to as chapters. If a company files for a Chapter 11 bankruptcy, then it implies that the company can regain its economic position by taking several cost-cutting measures. But, if the company files for Chapter 7 bankruptcy, then it can badly impact the employees to a larger extent because the company is shut down by selling off all its assets.
Under Chapter 11 bankruptcy of a company, you can keep the group insurance coverage if you stay in that job. But, the company can start laying off its employees and also cut down the various insurance benefits. In the case of life insurance companies, it’s better to have a word with your insurance admin and convert the group policy to an individual one.
Under Chapter 7 bankruptcy, the company no longer exists and so does the insurance coverage too. Hence, you, as an employee must check all withstanding claims and if those are not paid before the company closes, you can complain to the bankruptcy court immediately with valid proof.
However, there can be certain cases where the insurance company gets sold. In that case, there is nothing much to worry about because your insurance policy and coverage will remain intact. Just the insurance company may change its hands. That change is fully governed by the state laws and government so that your insurance policy now gets transferred to a financially healthy company.
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Can I Cash Out My Group Life Insurance Policy ?
Usually, group life insurance policies can’t be cashed out. Employers can offer different types of life insurance policies to their employees depending on their rules and regulations. If you are offered a group term life insurance plan, then it is just a kind of financial safety provided for your family members in case of your death. So, a term life insurance plan provides death benefits only, and thereby, you can never cash out such policies.
Some employers though provide other types of group life insurance policies like group annuity plans, group ULIP plans, and others. These have both insurances as well as investment opportunities helping the employees to make a retirement financial planning as well.
Thus, if you have a plan to cash out your group life insurance policy, then you need to discuss with your HR to know the type of life insurance offered to you. If that insurance features some investment components, then you may be able to withdraw some amount before the maturity date, though that depends on the type of plan.
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Do You Lose Your Life Insurance When You Leave Your Job ?
As mentioned a lot of times, group life insurance policies are offered by your employer. Hence, once you leave the job, the group life insurance policy is also lost. It’s because these policies are held by the employer and as per the agreement, coverage is provided to those as long as they are working for that employer.
This implies that once you leave your job, you are no longer an employee of that organization and hence the insurance coverage benefits will not be provided to you any longer.
Switching jobs is a common thing in the US economy and that is why most people have this doubt regarding life insurance policies. The only method to keep the insurance active is by porting a group life insurance to an individual one although that is not possible in most cases. Still, you can have a word with your HR and insurance admin to know whether that is possible.
Also Read: How To Become Financially Independent If You Loose Your Job ?
What Happens to Your Life Insurance When You Retire ?
We have told you in the previous section that group life insurance benefits are mainly provided to those employees who are currently working for the employer. A retired worker is no longer an active employee of the organization, so they will not receive insurance coverage in most cases.
However, even if a retired worker gets that coverage, the amount will be much reduced than the active workers. So, one must read all the documents provided to them for the group life insurance policy offered by their employer. This will let them know all the requirements for getting coverage after retirement if provided.
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Final Thoughts !
A life insurance policy is an important thing that one must always do to protect their family or beloved ones in case of accidental deaths. We mainly discussed the group life insurance policies that are provided by the employer for their workers.