Many employees receive group life insurance coverage as a benefit of their employment. But what few employees understand is that life insurance coverage does not necessarily end when employment ends. Most policies provide for life insurance continuation after employment; however, continuation of coverage is not automatic, and certain steps need to be taken if an employee wishes to maintain their life insurance. This is particularly critical if the employee leaves employment due to an illness or injury that may result in death. Let’s analyze life insurance continuation after employment ends, including the employer obligations and your rights as an employee.
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Understanding Life Insurance Continuation
Most U.S. employees have heard of COBRA, the law that provides for health insurance continuation when employment ends. However, COBRA is limited solely to health benefits and does not apply to life insurance continuation. Life insurance continuation depends on the language of the life insurance policy and, if included in the policy, typically involves the following:
Portability
If the policy provides for portability of coverage, the employee can simply take their coverage with them when they leave employment so long as they pay premiums for the coverage. Insurers may not offer portability if the employee is over a certain age or sick, but otherwise, they usually do not require evidence of insurability.
Conversion
Conversion coverage means that the employee transforms their existing term group life insurance coverage to individual whole life coverage. Insurers usually set high premiums, and the process of applying for conversion coverage can be complex.
Continuation of Coverage Due to Sickness and Waiver of Premium Due to Disability
Many policies allow employees who are unable to work due to sickness or injury to continue their coverage for a limited period so long as they pay the premiums. If the employee remains unable to work for a period, they may be eligible to continue their insurance without having to pay premiums if they provide medical proof of their inability to work. The waiver of premium is generally available only to employees under age 60.
Related Article: How Can I Protect My Life Insurance if I Become Ill and Cannot Work??Employer’s Obligations Regarding Continuation of Life Insurance
Any employee wishing to continue their life insurance when their employment ends should ask their employer about their right to do so. Even without an inquiry, though, employers are responsible for notifying employees about their right to continue their life insurance when their employment ends. Employers are deemed “plan administrators” which make them responsible for properly administering benefits. Employees who are ending their employment and inquire about the continuation of their life insurance are entitled to receive prompt and accurate information from their employers about how they can maintain their life insurance post-employment.
Even if the employee does not ask, though, if the employer is aware of the employee’s circumstances (such as severe illness or injury which may lead to death), employers have an affirmative obligation to contact the employee and provide information about how coverage may be continued. The failure to do so may be considered a breach of fiduciary duty. Likewise, conveying incorrect, inadequate, or incomplete information to employees may also be considered a breach of fiduciary duty.
One thing to be careful of is the employer that may be acting out of goodwill and simply allows the coverage to continue. Coverage is only available to employees who are actively working. If employees do not apply for portability, conversion, or an extension due to illness, the coverage will not remain in effect even if the employer continues to pay premiums.
Consequences of Discontinuation of Life Insurance
If no action is taken to continue an employee’s life insurance after their employment ends, the coverage will end and cannot be reinstated. The consequences of that happening are dire if the employee has an existing health condition that might make them uninsurable and thus unable to purchase replacement insurance.
The consequences are even worse if the employee leaves work due to an illness or injury that ends in the employee’s death. Coverage ends when the employee stops working. If no steps are taken to continue the coverage, there will be no life insurance payment, even though continuation was possible.
Remedies and Legal Recourse
If an employee who is eligible for portability, conversion, or continuation of coverage due to illness or injury loses their coverage due to the employer’s inaction or failure to advise or properly notify the employee of their right to continue coverage, the employer may face legal liability for breach of fiduciary duty. The life insurer may also be potentially liable as well if they had knowledge of the employee’s circumstances at the time of cessation of employment.
Continuation of life insurance coverage can be complicated, but that is not an excuse for an employer’s failure to assist their employees in continuing their life insurance coverage when their employment ends. Employers can potentially be sued for the amount of life insurance that was lost on account of their conduct plus attorney’s fees if they are found liable for not conveying accurate and timely information about continuation of life insurance that they were obligated to provide.
Getting the Help You Need
If an expected life insurance payment is denied after the loss of a loved one, and it appears the employer or insurance company may be responsible, it is essential to consult with an attorney who is knowledgeable and experienced in this area. At DeBofsky Law, our attorneys have decades of experience in helping families recover substantial recompense for our clients when a continuation of life insurance coverage is mishandled by an employer or insurance company.
