By Steve Hettrick, Employee Benefits Advisor
Many employers provide group term life insurance as part of their benefits offering. Group term life policies include an option that allows terminated employees to continue life insurance coverage at their own cost after their employment ends by converting the policy from group to individual coverage. The option to continue coverage will be spelled out in the group policy under the title of either conversion or portability privileges.
In order to convert the policy, the employee must notify the insurer of their intent to convert the coverage within 31 days of termination. The first payment is due within the same 31 day period. Depending on the specific terms of the contract, the new individual coverage may be in a different form (e.g. permanent or whole life insurance) than the term life insurance of the group plan. The new individual coverage may be more expensive than the group policy, but it is often worthwhile for an individual with health issues to pay the additional cost due to the fact that coverage cannot be denied regardless of health status.
If the employee happens to die during the 31 days following termination, the insurer will assume that the employee would have converted the coverage and the claim will be paid even if the employee had not actually applied for conversion or paid any premium.
Notifying an employee of their rights to continue life insurance coverage is something that employers may overlook while off-boarding an employee upon termination, but based on a recent court case ruling, that could be an expensive mistake.
In the case of Erwood v. Wellstar Health Systems, the court found that the employer was responsible to pay the former employee’s life insurance claim because the employer had failed to inform the employee how to convert the life coverage at the time of termination. The court ruled that because the employer was the fiduciary of the plan, it had a responsibility to provide conversion information at the time of termination, in spite of the fact that the employer had included such information in other routine benefits communications to employees.
Although there was no ill intent on the part of Wellstar, better off-boarding procedures would have avoided this situation. It is a good practice for employers to require terminated employees to sign off on a list of items received during their off-boarding process, and that list of items should include information about how to convert a group term life insurance policy to individual coverage.
Contact Brown & Brown of Detroit at 586.977.6300 for all your employee benefits needs and check us out online at bbtex.wpengine.com.