What does it mean if there is a conversion benefit?

Key takeaways

  • Some group life policies allow employees to convert their cover into an individual policy when they leave an employer.
  • This can be very useful when you leave a job to become self-employed or if your new job offers lesser benefits.
  • The premiums will be set at a rate that reflects your age, but you are guaranteed acceptance without exclusions and loadings.
  • You usually have 60 days after leaving an employer to take up the option.

If you are retrenched, leave your employer to take a new job or start working for yourself, you may face having lesser or no group life benefits, leaving a big gap in your essential cover.

Many employees do not know that their group life schemes may offer the ability to convert the group cover into cover in their own name. You can do this if your scheme offers what is known as a conversion or continuation benefit. It costs a bit more and your retirement fund’s trustees or employer have to agree to it, but it can be very worthwhile.

If there is a conversion benefit on your group life policy, the life insurer guarantees that your cover will be converted into an individual policy that is priced for your age when you leave the group scheme.  You will not be required to answer extensive medical questions or have lots of tests. The underwriting will be limited if there is any.

This means you won’t get any exclusions on cover or loadings on your premiums because you have medical conditions such as hypertension or diabetes. You also won’t have any waiting periods unless you had these on additional cover or you were still in a waiting period.

Standard rates

Your premium rate should also be the insurer’s standard (that is, best) premium rate for your age, gender and possibly some other factors.

Even if you are moving to a new job that also offers group life cover, consider using the continuation option to top up or complement the cover offered on that scheme.

A good financial adviser should help you explore all your options, including the conversion option.

You typically have a period in which to convert from group life cover to individual cover, for example, up to 60 days.

If you take up the option, you should be sent a policy document outlining all the benefits, terms and conditions and how future premium increases will be applied.