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Monday, 25 February 2019 14:24

A Commonly Missed Employer Responsibility on Life Insurance

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When an employee’s Group Life insurance plan ends, due to termination from the company or for other reasons, they don’t have to be left unprotected. Ex-employees are usually able to convert and/or port their coverage with the same Life carrier, but employers often are unaware of their obligations to the participant.

Most Group Life insurance plans contain provisions to make the group coverage convertible or portable to individual policies. However, the carriers differ in their stance on who is responsible for notifying participants of their rights, and many employers are under the impression that the carrier is sending out the notices. While some carriers do distribute them, the employer usually has some responsibility in making participants aware of their options.

To understand the differences between conversion and portability, the guidelines below are generally consistent but may not apply to every carrier policy. 

Conversion

  • Allows the employee to convert their group term life policy to a whole life insurance policy, without evidence of insurability, if they elect within a certain time frame.

  • Premium payments are potentially much higher than the group rates.

Portability

  • Allows the employee to convert their group term life policy to a personal term life insurance policy, without evidence of insurability, if they elect within a certain time frame.

  • Premium payments are usually less expensive than conversion, but may still be higher than the group rates.

Next, let’s focus on some commonly asked questions

Who is eligible?

  • Each carrier has differing definitions on the employee’s eligibility. Dependents are usually allowed to convert and port coverage as well if they currently have coverage in place.

How much time does an employee have to apply for these coverages?

  • Generally, the deadline for an employee to apply and pay the premium is 31 days after the employment termination date.

How are the rates determined?

  • Rates are calculated by the amount of insurance and employee’s age. A few other ways an insurance company can rate is based on gender, state of residence, and tobacco status.

Can an employee convert or port Basic AD&D and Voluntary Life and AD&D coverage?

  • The short answer is maybe, but it depends on your carrier.

What is the employer’s responsibility?

  • The employer’s responsibility depends on their carrier. If the carrier doesn’t send out these notices, employers should provide prompt notice to the employee regarding their options. A best practice could be giving the notices out at the exit interview and/or with the COBRA/State Continuation paperwork.

It’s also important to note that when changing Life carriers, employees also have the ability to convert their coverage. Most employees won’t take action on converting since a new group Life policy will be in place, but if there are any employees that are disabled or otherwise not actively at work, they absolutely need to be notified of their conversion rights. This is because until they return to work, they will typically not be listed as an active employee on the new Life policy.

In conclusion, portability and conversion provisions are often easily overlooked. The options for employees depend on your carrier’s definition, and we encourage employers to reach out to their broker or carrier to understand their obligations. If you would like assistance from Fall River, please call your Client Manager or contact us here.

Read 216 times Last modified on Monday, 25 February 2019 14:44