Group Benefits vs Personal Coverage: What Happens When You Leave Your Job
This spoke is part of the Canadian insurance planning guide. How much personal life insurance the household needed all along is the need analysis, which already tells you not to build an 18-year number on group life. The living benefit is the disability guide, and the self-employed version is disability insurance for the self-employed.
- Read the certificate for the last day of coverage. Do not assume coverage runs through a severance period unless the booklet says it does.
- Conversion, if it exists, is a short window written in that booklet. This page will not invent a number of days. Miss the window and you are applying with new medical evidence.
- FCAC describes a life insurance death benefit as a tax-free payment. CRA's payroll chart treats employer-paid life insurance premiums as a taxable benefit. Those are different amounts.
- If the employer pays any part of a group disability plan, periodic benefits are generally taxable. If employees pay the entire premium, they generally are not. The after-tax cheque is what you replace.
- Health and dental access through work can also block the Canadian Dental Care Plan. That test is the health and dental guide.
What is different about a policy you do not own?
| Question | Group plan | Personal policy |
|---|---|---|
| Who owns it? | The plan. You are covered while you are eligible. Leaving the employer, or dropping below the hours the plan requires, can end it. | You. It continues while you pay the premium and the contract is in force, including after a resignation. |
| How much life insurance? | Whatever the booklet says, often a multiple of salary. The multiple is a plan design, not a Canadian average. This page does not cite one. | The face amount from the need analysis, reduced by group coverage only for the years you will actually have the group coverage. |
| Can you take it with you? | Only if the contract offers conversion or portability and you complete it on time. Life conversion and health conversion are often separate applications. | It is already yours. Replacing it is optional. The term feature test is how. |
| Tax on the life premium | Employer-paid group term life is generally a taxable benefit under the prescribed rules, reported on the T4. It is not always equal to the raw premium. | You pay with after-tax dollars. The premium is generally not deductible. |
| Tax on the disability benefit | Taxable if the employer contributes. Not taxable if it is a true employee-pay-all plan. | Generally not taxable when you paid the premium yourself. |
| Underwriting | Often a group guarantee, with limits, while you join on time. Convenient, and not a personal medical file you can show the next insurer. | Your health at issue. Buying a small personal policy while you are healthy is how you avoid doing the whole need at conversion, when you may be older or unwell. |
Table as of September 2026. Tax rows follow FCAC's description of a tax-free death benefit and CRA's payroll treatment of employer-paid premiums and wage-loss plans.
What should you do in the weeks you resign?
- Get the booklet and the conversion form before the last day. Ask human resources, in writing, when life, disability, and health each end. Severance pay and benefit coverage are not the same date unless the agreement says so.
- Price conversion against a new personal policy. Conversion without medical evidence is valuable if you would not qualify today. It is often a permanent product at attained-age rates, which can be a poor fit for a temporary need. A new term policy, if you are insurable, may match the need analysis better. Apply early enough that the new policy is in force before the group coverage stops.
- Do not let one form do two jobs. A health-and-dental conversion does not preserve a life conversion. Submit each one the plan requires.
- Recount the disability tax. If group long-term disability was taxable, a personal policy you pay for may be tax-free, so the monthly amount you need can be lower. The arithmetic is on the self-employed disability page and applies to employees buying their own contract too.
- Check dental before you buy a private plan out of habit. Access to private dental coverage can make you ineligible for the Canadian Dental Care Plan even if you never claim. Read that test the same week.
An employee in Ottawa earns $110,000. This illustration assumes the booklet says group life of two times salary, so $220,000, while employed. That multiple is a made-up plan design for the example, not a statistic about Canadian employers. The household need analysis, done properly, might be several times larger because of a mortgage and children. The $220,000 is a bridge. It is not subtracted from an 18-year personal need. On the Friday the job ends, the $220,000 ends too, unless a conversion is completed. A personal term policy bought two years earlier, for the gap the group plan never covered, is still in force. The life event that should trigger the recount is the same one in the life events tax guide: a job change is a tax event and an insurance event on the same day.
Seeing group life on a T4 surprises people into thinking the eventual payout will be taxed. FCAC's description of the death benefit is a tax-free payment to the beneficiary, whether premiums were paid by you or by an employer. The annual amount on the slip is the benefit of coverage this year. CRA's payroll chart is the premium side. A 2008 CRA interpretation, document 2008-0278501E5, says the same split in more technical language: proceeds received because the insured person died are generally not taxable.
Frequently asked questions
Do I lose life insurance when I quit?
You lose the group coverage when the plan says you do, which is often at the end of the month of termination or on the last day of work. Read the date. Personal policies continue. A conversion right, if the booklet includes one, is a deadline. Missing it means a new application. Ask for the form before you give notice if you may not pass a medical.
Is employer-paid life insurance taxable?
The premium benefit generally is. CRA includes employer-paid life insurance in the list of premiums that can be a taxable benefit, and group term life uses a prescribed calculation rather than a casual estimate. The death benefit paid because someone died is a separate amount, and FCAC describes it as tax-free. Check the T4 for the annual benefit. Do not add the face amount to your income.
Are group disability benefits taxable?
If the employer pays any part of the wage-loss plan, periodic benefits are generally included in income under paragraph 6(1)(f), minus employee contributions that have not already been deducted. If the plan is employee-pay-all, those benefits are generally not taxed. Know which plan you are in before you compare a group percentage of salary with a personal quote.
Should I convert or buy a new term policy?
Convert if you need coverage and a new medical would be a problem. Buy a new term policy if you are insurable and the need has an end date, because conversion products are often permanent and priced at the age you are now. You can do both for a few weeks: apply for term, and keep the conversion right alive until the term policy is in force. Then cancel the one you do not want.
Does a new employer's plan replace what I lost?
Only after you are eligible, which may be after a waiting period, and only for the amount that plan offers. A three-month wait with no personal policy is an uninsured quarter. Personal coverage is the bridge between booklets. Compare the new booklet's definition, especially on disability, before you cancel anything you bought yourself.
What about health benefits during severance?
The severance letter controls, not a custom. Some agreements continue health and dental for a stated number of months. Some end them immediately. Life conversion deadlines can run from the coverage end date, not from the resignation date. Get the dates in writing. Private health insurance after that, and the dental-plan interaction, are the health and dental guide.
Sources
- FCAC: life insurance, including the tax-free death benefit
- CRA: employer premiums for life, health, and disability plans
- CRA views in document 2008-0278501E5, via Tax Interpretations
- Canada.ca: Canadian Dental Care Plan eligibility
The booklet is a benefit of the job. The policy is yours.
The T4 benefit and the disability income line are tax. The 2026 tax guide is the return side.
Get the 2026 Tax Guide — $49 CAD
