Understanding Severance Packages, Part 4: Getting a Severance Package? Keep Insurance Coverage in Mind

It can happen to anyone. Sometimes the writing’s been on the wall for a while, sometimes it’s an unexpected jolt, but whatever the case, it’s stressful to be dismissed from your job. While much of our identity is tied to our work, it’s valuable to keep in mind that being let go is often a consequence of tighter budgets or other corporate issues and not necessarily an individual’s performance.

Undoubtedly, you’ll have many things to think about and many different emotions to process. Everyone’s situation is unique and only you know what your next career step should be after receiving a severance package. In this blog post, we look at the potential impact on insurance coverage when you lose your job and how you can keep the coverage you and your family require.

Focus on maintaining coverage

Insurance planning is a vital component of a comprehensive and well-designed financial plan. It’s important to consult with an expert in the field to devise an insurance program that best suits your specific needs and objectives. Since it’s quite common for employees to have much of their life, disability and health insurance coverage through their company group plans, we believe you should understand what your departure from the company could mean for your insurance coverage.

Regarding health insurance, determine whether you’re eligible for a company retiree health plan. Also, evaluate the merits of electing COBRA to continue coverage for a period of time following your separation date—until you find another job or become eligible for an alternative medical plan (such as Medicare or an individual plan). If you elect COBRA, you and your qualified dependents will have the option of continued health benefits coverage in the event that you lose your job. Remember that once your employer-sponsored benefits end, you’ll generally have 60 days to enroll in COBRA.¹

As well, it’s often possible to remain on COBRA for up to 36 months, if circumstances warrant. This extended period may help keep you covered by health insurance until you find another viable option.

Just be aware that you might need to pay the group rate premium and a 2% administrative fee, so these out-of-pocket costs should be considered before opting for the extended COBRA plan.²

Having adequate insurance helps you stay prepared in case you or any of your eligible family members encounter unexpected healthcare needs. We understand that health insurance can be a sensitive topic, so we’re committed to supporting our clients and ensuring they have the optimal strategy in place in order to avoid any major gaps in their healthcare coverage.

Insurance strategies to consider

For life insurance, evaluate how much coverage you should maintain and for how long. Also compare the cost to convert your group coverage to an individual policy versus getting a new policy elsewhere. Typically, you may convert your group policy to an individual policy with no evidence of insurability required, which may be an advantage. However, also bear in mind that as you get older, group life insurance policies are often more expensive than private policies, so it may be worthwhile to shop around for a private policy.

When it comes to disability insurance, your coverage often ends on your workplace separation date. Individual private coverage can be expensive and difficult to qualify for, so if you plan to keep working, you may want to be mindful of the group disability coverage offered by a future employer.

If you hold funds in the company’s Health Savings Account (HSA), your account can stay there. Don’t worry, you won’t forfeit these funds when you leave the company. Please note that if you haven’t made your full annual contribution to the HSA via payroll deductions by your separation date, you’re still permitted to make any remaining contributions from your personal funds. You can claim a tax deduction for these HSA contributions on your tax return as late as April 15 of the following year after separation.

We’re here to help

Over the years, our team has helped many executives and professionals navigate the complicated and often overwhelming severance process. We’ll develop a personalized strategy, including investment recommendations, to help you make the most of your severance package and position your finances for long-term success.

Leaving your company could impact or even negate your insurance coverage. By being proactive, you can help protect yourself and your loved ones. Contact a Corient Wealth Advisor today to learn more and to see if you’ll still have the coverage you need.

¹ https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra
² https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra

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