Group life insurance is one of the fringe benefits many employers provide. For most employees who become critically ill, a major concern is how to keep that coverage while they cannot work. When that happens, life insurance typically ends once the employee is no longer active at work. However, there are ways that employees can protect their life insurance and continue coverage if they are unable to work.
Three provisions can keep the coverage in force: the waiver of premium, portability, and conversion. The waiver of premium is the easiest to miss because human resources may not mention it and its deadline can pass before you learn it exists.
If you bought life insurance on your own, look for a waiver of premium rider in your policy. Its terms and deadlines can differ, and the ERISA appeal rules do not apply to a policy you bought yourself.
Key Takeaways
- Employer life insurance usually ends when you stop working. Applying for the waiver of premium, or electing portability or conversion, can keep it in force.
- The waiver of premium is not automatic. You must apply and prove your disability by the deadline in your policy.
- An approved long-term disability claim does not by itself approve the waiver unless your life policy ties the two together.
- If coverage lapsed because no one told the employee about these rights, the family may still have a claim against the employer.
Life Insurance Waiver of Premium Due to Disability
Most group life insurance policies contain provisions that allow life insurance to continue while an employee is disabled. The employee does not have to pay premiums for that continued coverage. An employee who becomes disabled should check their coverage. They should also ask their human resources representative whether they are eligible for a life insurance waiver of premium.
Life insurance waivers of premiums vary from policy to policy. In most instances, eligibility for the waiver of premium benefit ends at age 60. Other policies allow older employees to qualify. Even when the employee qualifies, though, the life waiver of premium benefit is not forever. It usually ends at a specified age, such as age 65.
Another critical aspect of the life waiver of premium benefit is the meaning of “disability.” An employee may qualify for disability benefits when they are unable to perform the duties of their regular occupation. To qualify for a life insurance waiver of premium, though, the employee may need to meet a more stringent standard. They may have to show that they cannot perform any work at all.
Human resources personnel may not be familiar with the life insurance waiver of premium benefit. They might not tell an employee who stops working because of disability that the benefit exists. For that reason, employees need to be proactive. Any employee who has employer-sponsored life insurance and needs to stop working because of disability should request a copy of the life insurance coverage. They should then find out whether they are eligible for the life insurance waiver of premium benefit.
Conditions and Deadlines for the Waiver
The waiver of premium has to be applied for, and each group policy sets conditions and deadlines for the claim. The insurer may refuse to consider a claim filed after a deadline. The policy usually covers:
- Your age when the disability begins. Policies commonly require the disability to start before age 60, although the age varies by policy.
- The waiting period. The disability usually has to last for a set time before the waiver takes effect. Nine months appears in some policies, and some require a full year.
- The deadline to send proof of disability. One certificate requires proof within three months after the insurance ends. One state employer’s application requires it within twelve months of the last day worked. Because human resources may not mention the benefit, an employee may learn about it only after this deadline has passed.
Once the insurer approves the waiver, it can ask from time to time for proof that the disability continues. If the employee does not send that proof, the waiver ends. If you have stopped working because of illness, it helps to ask for the life insurance certificate right away. The certificate lists each deadline, and reading it early leaves time to meet them.
Why Waiver of Premium Claims Are Denied
Waiver of premium claims can be denied for reasons such as these:
- No application, or a late one. No one applied for the waiver, or the application arrived after the policy’s deadline.
- A stricter definition of disability. An insurer may approve a long-term disability claim because the employee cannot do their own job. The waiver may require that they cannot do any job. Approval of one claim does not decide the other.
- The employer kept paying the premiums. Sometimes an employer keeps paying after the employee stops working, and no one applies for the waiver. The insurer may later say the coverage ended under the active-at-work requirement.
- Electing portability or conversion precluded the right to seek a waiver. If portability or conversion was elected instead of a waiver of premium, the right to have premiums waived may be forfeited.
- The insurer says the disability began after coverage ended. The disability has to begin while the coverage is in force. That makes the last day worked, the date the condition became disabling, and the date coverage ended important to establish early.
The Appeal Rights That Apply to a Waiver of Premium Claim
This section applies when the life insurance is part of a plan governed by ERISA. The Department of Labor has said that when a plan has to decide whether you are disabled in order to decide a claim, it is a disability claim, whatever the plan calls the benefit. Under the ERISA claim regulations, you have:
- at least 60 days to appeal a denial, although most plans follow the time frame for appealing a disability benefit denial; and
- the right to a copy of the claim file, including the reports the insurer relied on, at no charge.
The deadline for appealing a waiver of premium denial may not apply when the plan bases the waiver on someone else’s finding of disability. Examples are a Social Security award or an approval under the employer’s long-term disability plan.
Portability and Conversion
Group life insurance usually also offers two options to continue life insurance coverage after an employee stops working, for any reason. One option is portability. Portability means the employee can take the coverage with them when they leave, as long as they take over paying the premiums. Conversion, on the other hand, means the employee converts the group coverage to individual coverage (usually whole life). The employee then continues paying premiums.
When employees port or convert their group coverage, they usually keep only the amount of coverage in effect at that time. The premium costs can be steep. Also, one or the other option is sometimes unavailable if the employee is disabled when employment ends. In either case, though, the employee keeps their existing coverage. The insurer does not require underwriting or proof of insurability as a condition of providing it.
Employees usually have a maximum of 31 days to convert or port their coverage after their employment ends. However, if the employee dies within that period without having acted, conversion is automatic. The beneficiary is then entitled to receive the insurance benefits. Once that period passes, though, the employee is no longer eligible to continue their coverage.
Issues That Often Arise in Continuing Life Insurance Coverage
Most employers have excellent human resources personnel who understand employees’ rights to continue their coverage and take care to protect them. Still, mistakes occur.
No Good Deed Goes Unpunished.
There is a sardonic saying that “no good deed goes unpunished.” Unfortunately, the expression applies all too often to employers who try to do the right thing. Their kind efforts can perversely create problems. In such instances, an employer might think it would help the employee to keep that person on the group insurance, especially an employee known to have a terminal illness. The problem is that group life insurance contains an “active at work” requirement. That requirement automatically ends coverage for any employee who stops working without electing portability or conversion. It also ends coverage for an employee who does not apply and qualify for a life insurance waiver of premium. In such instances, the employer may end up having to pay the insurance benefit that was payable under the policy.
COBRA Only Applies to Health Insurance.
It is the employer’s obligation to tell employees who stop working about their right to continue their life insurance. Employers know they must give COBRA notices to departing employees so they can choose to continue their health insurance. However, COBRA applies only to health insurance. Continuing life insurance coverage requires a separate notice of conversion and portability rights. Some employers forget to give appropriate notice to employees who stop working because of illness. Some even wrongly tell employees that nothing can be done to extend their life insurance coverage.
Suppose an employee loses their life insurance because the employer failed to give notice of continuation rights, or gave the employee wrong information. If the employee then dies, the employer may be liable to pay the beneficiary the life insurance that would otherwise have been payable. Most employee benefits are governed by the federal ERISA (Employee Retirement Income Security Act) law. A key aspect of ERISA is that employers have a fiduciary obligation to notify employees of their rights, even if the employee never asks. If the employer fails to give an appropriate notice of the right to continue life insurance coverage, the beneficiary can sue the employer for breach of fiduciary duty. Before 2011, employees could not have sought a remedy for such a breach. As a result of the Supreme Court’s 2011 ruling in CIGNA Corp. v. Amara, employees can now recover the life insurance that would have been paid but for the employer’s misfeasance or nonfeasance.
Conclusion: How to Protect Your Life Insurance Benefits if You Become Ill
Life insurance is a key fringe benefit that many employers offer to their employees. That benefit typically ends when an employee stops working for their employer. Still, an employee who is ill can keep the financial protection that life insurance gives their family. They can apply for a life waiver of premium, if eligible, or pursue portability or conversion.
The issues are complex when an employer fails to tell the employee about the right to continue coverage. Even so, there may still be a right to recover life insurance payments after the coverage has lapsed. In those circumstances, it is important to consult an attorney who handles life insurance continuation disputes.
Get Help With a Denied Life Insurance or Waiver of Premium Claim
If your coverage lapsed while you were too ill to work, DeBofsky Law can review what happened. We can also help if a waiver of premium or life insurance claim was denied. It helps to have the life insurance certificate, any denial letter, and your correspondence with your employer. Contact us to talk about what your plan requires and which deadlines still apply.
Frequently Asked Questions About Keeping Employer Life Insurance When You Cannot Work
Does approval of my long-term disability claim waive my life insurance premiums?
Not on its own. The waiver of premium is a separate claim under the life insurance policy. A different company or claims office may decide it. The two policies may also define disability differently. The insurer may have approved your long-term disability claim because you cannot do your own job. The life policy may require that you cannot do any job you are reasonably suited for. So it is possible to receive disability benefits and still have the waiver denied. The safest course is to get the life insurance certificate and read the waiver section. Then file a separate waiver application with its own medical proof.
How long do I have to apply for the waiver after I stop working?
Your certificate sets the deadline, and the periods vary widely. Some policies require proof of disability within three months after the insurance ends. Others allow up to twelve months from the last day worked. Many also require the disability to last through a waiting period, often nine months, before the waiver can start. Because the time runs from a date in the past, such as your last day of work or the date coverage ended, it can pass before you learn the benefit exists. If you have stopped working, ask your employer or the insurer for the certificate and the summary plan description. Find the date your deadline runs from, and count from there.
Should I convert my policy while a waiver of premium claim is pending?
It is worth asking the insurer before you do. Some group policies end the waiver on the date an individual policy issued on conversion takes effect. Converting could then replace coverage that costs you nothing with a policy that charges premiums. That would happen at a time when your income is likely reduced. Conversion and portability also have short deadlines, usually 31 days after employment ends, though your policy sets the exact period, so the choice can come up quickly. A safer order is to apply for the waiver first, in writing. Then ask the insurer in writing what would happen to that claim if you convert. If the conversion deadline is close, talk with a lawyer before it passes.
What ends the waiver once it has been approved?
The policy lists what ends it. The usual reasons are:
- you recover or return to work;
- you reach the age the policy names, such as 65, after which the coverage ends or is reduced even if the disability continues;
- you do not send continuing proof of disability when the insurer asks, which some policies allow as often as every six months; or
- you refuse an examination the policy allows the insurer to require.
When the insurer ends the waiver, it should send you a written notice. If the plan is governed by ERISA, that notice starts the time to appeal. Reading it as soon as it arrives gives you the most time to respond.
