Typically, group life insurance coverage ends when active employment ends. But there is often a right to convert group coverage to an individual policy built into the plan. Conversion rights and the process of converting a group life plan to an individual policy are controlled by the specific plan terms. Note that some state laws require that carriers and/or employers provide certain conversion rights and notices to employees. A carrier agreement may require employers to assist with this. It may come as a surprise that required notices are not always handled by the carrier, sometimes leaving the employer legally responsible. Employers sponsoring group life insurance plans should take care to understand applicable conversion terms and their administrative obligations.
First, employers need to know who is responsible for distributing conversion notices and when and how those notices should be sent. In addition to the plan documents, the carrier agreement may address this. Conversion notice responsibilities will vary by carrier. When notice responsibility falls on the employer, it is best practice to keep documentation of mailing and delivery of conversion notices (e.g., first-class mail return receipt requested). As to what documentation needs to be provided to satisfy notice, employers should look to the plan terms. When an employee's employment terminates, the SPD, plan document, and any leave policies that address conversion rights should be provided.
Second, even where the carrier is responsible for providing conversion notices, employers should have consistent procedures to respond to conversion information requests from employees. Steps should be taken to ensure conversion rights are clearly, completely, accurately and timely communicated to employees. A description of conversion rights with reference to applicable plan terms should be included with any leave policies, leave communications and offboarding materials. Anyone designated to respond to life coverage inquiries must be trained in when and how a group plan can be converted to an individual policy. This includes whether coverage continues during leave and when coverage otherwise terminates, including deadlines to convert. Importantly, an employer's response to inquiries should not be limited to answering precise questions because employees may not know which specific questions to ask. Meaning, there should be no potentially harmful omissions.
While most employers are very familiar with COBRA and state continuation rights and notice requirements when group health plan coverage ends, compliance obligations related to group life plan coverage are often overlooked. Without ensuring proper procedures are in place to provide notices and respond to coverage inquiries, employers may find themselves liable for claims under lapsed group coverage that was deprived of adequate conversion notice. We reported on two such cases in previous editions of Compliance Corner: Chelf v. Prudential, et al. and Estate of Foster v. Am. Marine Servs. Group Benefit Plan, et al.