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Benefits Conversion: Maintaining Coverage When Leaving a Job

By: Benefits by Design | Tuesday April 27, 2021

Updated : Tuesday December 5, 2023

Benefits Conversion: Maintaining Coverage When Retiring or Leaving a Job | Benefits by Design

The average Canadian employee will change jobs up to 15 times throughout their working career, so dealing with employees coming and going is normal.

But did you know that employers and Plan Administrators are required to offer conversion options to employees who are losing their coverage?

Not offering these options may open up employers and Plan Administrators to significant liabilities. It’s important to understand what benefits conversion is, why it’s important, and what roles and responsibilities employers have!

What is Benefits Conversion?

When an employee insured under a group benefits plan is terminated from the plan, employers must provide them with options to maintain aspects of their coverage on an individual level. This is known as benefits conversion, which transfers group coverage into an individual policy.

Employees can apply for coverage within a specific time period to convert their group policies to individual ones, up to the maximum coverage they had under the group plan for Life, Accidental Death and Dismemberment (AD&D), and Critical Illness Insurance. What’s more, employees converting their benefits will not need to supply medical evidence if they apply within the specified time period.

What Benefits Can be Converted?

Not all benefits can be converted to individual policies. However, employees must be provided with conversion options when losing the following benefits:

Why Should Employees Convert their Benefits?

Benefits conversion offers employees the ability to maintain their benefits coverage during times of transition or even retirement.

Maintain Coverage Through a Waiting Period

When starting a new job, there may be something called a waiting period (often 3-6 months), where an employee is not eligible for benefits. During this time, employees can convert their benefits from their previous position to maintain coverage during the gap. This coverage can then be cancelled once the employee enrolls in their new group benefits plan.

Maintain Coverage for New Job Without Benefits

It’s also possible that an employee’s new position does not offer benefits (or perhaps not all the benefits as the previous job), in which case, they may wish to convert their benefits to keep some coverage.

No Medical Evidence or Interruption in Coverage

Employees converting their benefits do not need to supply medical evidence, which is of particular importance for anyone with a pre-existing condition or ongoing monthly medical expenses, such as diabetes.

By converting their coverage, employees will see no interruptions and can receive guaranteed coverage. The alternative would be to apply for individual coverage, where they would need to supply medical evidence and may be declined for coverage.

Benefits Conversion: Employer & Plan Administrator Responsibilities

When an employee leaves a job (voluntarily or involuntarily), retires, or is no longer working the minimum required hours for eligibility, they may lose their coverage. When it comes to benefits conversion, employers and Plan Administrators have legal responsibilities to provide options for their employees.

There are also deadlines to consider. Employees must convert their benefits to an individual policy within a specified time limit, or else they may lose their coverage entirely. The deadlines for conversion of each benefit vary:

Extended Health Care (EHC) — 90 days from loss of coverage
Dental Insurance — 90 days from loss of coverage
Life Insurance — 31 days from loss of coverage
Accidental Death & Dismemberment (AD&D) Insurance — 31 days from loss of coverage
Critical Illness Insurance — 31 days from loss of coverage

Note: Deadlines and processes for benefits conversion may vary by Insurer. Employees and Plan Administrators are encouraged to speak with their Insurer directly about deadlines and coverage.

These deadlines for conversion are just another reason why it is important to terminate an employee from the group benefits plan in a timely manner. If they are removed from the plan late, they could miss their conversion deadline, which opens up potential liabilities for employers and Plan Administrators.

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Can Employees Keep Benefits When Leaving a Job?

Absolutely! That’s what benefits conversion is all about.

However, it is important to note that not all group benefits are eligible for conversion. Even those that are may not be exactly the same coverage. For example, an employee with a Life Insurance policy of $50,000 can convert the entire policy to an individual one, or may choose a lesser amount, usually in $5,000 or $10,000 increments.