ProSpeak

Failure to Address Life Insurance Conversion Can Prove Costly
11/6/2018
Robert W. Kistler
ProSpeak

Most companies would never (intentionally) selfinsure employees’ life insurance benefits. At least one court has ordered an employer to pay a former employee’s widow $750,000 after company representatives incorrectly told the couple the employee would remain eligible for the company’s group life insurance beyond the period permitted by the policy. The employee was a neurosurgeon with brain cancer and his wife faced the prospect of providing for their six young children in the likely event of his death. According to the policy, coverage ended when his medical leave of absence ended (nine months before his death). Contrary to the employer’s repeated assurances of continued coverage, the employee’s widow did not learn his coverage had ended until the insurer denied her claim for the $750,000 death benefit. The Court ordered the employer to pay the $750,000 and indicated that interest and attorney’s fees could also be awarded.

Group life insurance policies typically allow employees to convert their employer-sponsored coverage to an individual policy without proof of good health – vitally important to those with serious medical conditions. In the aforementioned case, the employer failed to recognize not only that the employee was no longer eligible for group life insurance coverage, but also that the employer’s group policy allowed the employee to convert his group coverage to an individual policy once his eligibility for group coverage ended. As a result, the employer never told him the insurer required him to timely apply in order to convert his employer-sponsored coverage to individual coverage once his medical leave ended.

Employers sponsoring group life insurance should: 1. Read the insurance policy and understand the policy’s conversion feature; 2. Accurately inform employees when their employer-sponsored group coverage will end; 3. Provide the insurer’s conversion application and instructions to employees; 4. Carefully review and understand the policy’s conversion feature and application process before responding to questions from employees regarding continuing coverage; 5. Notify the insurer and any third-party administrator when employees become ineligible; 6. Supervise any third parties assisting with the conversion notice and application process.  

 
Barrett McNagny LLP

Phone: (260) 423-9551

Email: rwk@barrettlaw.com

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