- Initially individuals purchased life insurance. Equitable Life Assurance Society of New York started the first group life policy at Pantasote Leather Co. The company had 121 employees and the lower group rate was paid by Pantasote Leather Co. Equitable later wrote six other groups with Montgomery Ward and company the largest at 2912 lives. Now other insurance companies decided they wanted be involved in the market. It grew rapidly. The problem was that when the individual left the company, often they'd lose their insurance. The conversion right for term policies and individual plans purchased through payroll deduction give portability to work life insurance.
- Portability of a life insurance policy is important. If you have your life insurance through work and the company closes, you still maintain coverage as long you pay the premium. This is important, particularly as people get older or develop illnesses that preclude them from purchasing more life insurance. Portability means that if you retire early due to a disability, you'll always have life coverage if you pay the premium.
- Some group term life insurance is portable because you can convert it to an individual policy without answering health questions. While this guarantees you'll have coverage, the rate is often much higher for two reasons. The first is that it becomes a permanent whole life plan. The second is that the company knows that most people who convert their policies have health issues so the actuaries factor it into the premium cost.
- Often the plans that you convert are the supplemental plans through work you purchase out of pocket. If you bought a life policy through a company that isn't group insurance but merely payroll deducted, these policies don't require conversion. When you leave the company, the plans go with you and you pay directly to the insurance company unless you start work at another place that offers the same insurance payroll deduction.
- Portability is a huge issue for people that develop health problems while employed. It isn't just aging that brings on these problems. Young people have accidents and illnesses also. Young people with young families particularly need life insurance to be portable because they often have a longer time they're responsible for children and spouses. Older people closer to retirement want to make sure spouses have adequate money for retirement and something for burial.
- It's far better to purchase at least some individual life insurance or a permanent plan through payroll deduction so you always have affordable coverage. Often the cost of converting term is excessive and comes at a time when you need to cut your budget rather than increase it.
