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Money Fix: How to get life, disability insurance after losing job

"Disability policies tend to be more expensive when

"Disability policies tend to be more expensive when bought outside of a group plan," says Joseph Favorito, managing partner at Landmark Wealth Management in Melville. Credit: Alex M. Wolff

It’s bad enough when you lose your job and your income disappears, but to make matters worse, company benefits vanish too. While COBRA is a lifeline to keep health coverage, what do you do about the employer sponsored life and disability insurance you may have also had?

Heavy sigh. The last thing you need right now is something else to sort out. Here’s help to get you started on your search for coverage.

Find out where you stand

Make no assumptions. Talk to your HR Department to determine what options you might have. It may be that your life insurance and/or disability coverage is portable (meaning you can take it with you). Some group insurance can be converted to an individual policy.

If you can continue coverage, anticipate that it could be more expensive without the employer subsidy. Another downside is that the product options can be limited compared to purchasing directly. The upside? At least you have insurance and a product you’re familiar with. You also won’t have to go through medical exams to determine if you are insurable. This is no small matter if you are a smoker, have health issues, or are 40+.

What to do about disability coverage

However, if portability isn’t possible, look elsewhere. Disability insurance covers you when you’re employed but too ill or injured to work.

“Disability policies tend to be more expensive when bought outside of a group plan, especially if you are in a job that might incur a high risk of disability. Sometimes the group plan is the only realistic option, and you’re forced to wait until you find employment with another organization,” says Joseph Favorito, a managing partner at Landmark Wealth Management in Melville.

One possible solution for both life and disability insurance is to join a professional association, if you don’t already belong to one. Depending on the field you are in, sometimes there are organizations that professionals join for things like continuing education credits and advanced training. Many of these groups offer discounts to their members on insurance premiums that can be significant by offering it as a group plan.

“These discounts may be for life insurance, disability insurance, as well as property and casualty insurance,” says Favorito. If you’re able to snag disability coverage, shoot to get a policy that will provide at least 60% of your income.

Understand that getting disability coverage on your own while unemployed can be complicated. You may not be eligible since you’re unemployed and there’s no income to replace.

 So if your disability coverage at work is convertible, that may be your best option, says Alex Masferrer, a managing member of Persevere Planning in Miami. However, if you have worked and paid FICA tax and met the minimum number of work credits with Social Security, you may be eligible for Social Security Disability Insurance offered by the federal government.

Look at options for life insurance

On the bright side, life insurance can be obtained while out of work. “Some carriers are better than others in allowing those between jobs to secure coverage. The best thing that those who have lost their job can do is to find an independent broker or agency who can write several companies and ask them to shop for your life insurance,” says Raymer Malone, a partner in the Katz Nassau Agency in Rockville Centre.

As for how much life insurance to buy, be realistic, you have precious little money to spare right now.

“If you try to cover 20 years of your income and that requires $2 million of life insurance but you can only afford $350,000, it wouldn't be wise to buy a policy that would only be enforced for seven months once you run dry on your income from unemployment. I recommend a 10-year term for $100,000. Something is better than nothing,” says Jordan Shanbrom, an independent insurance broker in Lancaster, California.

Even before you approach a broker, you can noodle around online on sites like LifeHappens.org and policygenuis.com to take advantage of calculators that help you determine how much coverage you need and to get an education on life and disability insurance basics. You might also find that you’re ready to DIY and cut out a broker altogether.

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