Some states have laws that require employers to notify terminated employees of their right to convert group life insurance benefits to a direct pay individual life insurance policy. The limited opportunity to convert life insurance, which is generally a short 31-day window following the date group coverage ends, allows employees to continue their life insurance without medical underwriting.

The conversion privilege is especially important when employees have medical conditions that would make it difficult for them to secure coverage on their own elsewhere.

In many circumstances providing a life insurance booklet or ERISA Summary Plan Description that contains specifics on this provision is acceptable notification. But because state laws vary and some states require specific information about conversion rights be provided to employees at the time of benefit termination, we suggest that detailed information about the conversion privilege be provided to all employees losing life benefits.

Federal court decisions, like the court’s position in a very recent Western District of Pennsylvania case, Erwood v. Life Insurance Company of North America, emphasize the need for employers to protect themselves from litigation. We suggest employers establish a process so that all employees losing eligibility for life benefits are provided the following information immediately upon loss of coverage if the plan includes a conversion provision:
1) when the group coverage will end;
2) when the right to conversion will expire (generally within 31 days);
3) the process for converting life insurance benefits (include copy of form or phone number for the conversion department if no form exists);
4) the amount of premium that will be charged for the conversion (or information on where may be obtained); and,
5) if applicable, include information about portability options as well (not all plans include a portability provision).

Henderson Brothers Insurance can help you determine the appropriate notification process for your particular benefit and insurer.

Please note that the information contained in this posting is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This post should be reviewed by your legal counsel or tax consultant before use.