When an employee goes out on a leave of absence or terminates employment, it is important for employers to have a dedicated process for notifying employees of critical changes to their benefits and what is required of an employee to continue their benefits.
Often employers remember to advise about COBRA eligible benefits but forget they are also responsible for providing information about life insurance, including portability or conversion information to employees who are losing benefit eligibility.
Background: Both the portability and conversion provisions allow the employee to continue life coverage that is lost due to an employment status change. Policies may vary, so one needs to refer to their specific policy for clarification.
- Portability – When an employee ports coverage, they keep the group term life coverage offered by their employer along with some, but not all of the optional benefits that were included.
- Conversion – When an employee converts coverage, they are converting to an individual whole life (or permanent life) insurance policy. The converted policy only provides life insurance and does not include the optional benefits such as Waiver of Premium, Accidental Death and Dismemberment.
In the case of, Erwood v. Life Insurance Company of North America and WellStar Health System, Inc., a federal district court awarded $750,000 in damages to Patricia Erwood, the wife of a deceased former employee of WellStar Health System whose life insurance lapsed while he was out on disability, and the employer failed to notify him of his conversion rights.
Even though the employer had sent the employee an FMLA leave packet that included information about it being possible to continue his life insurance benefits, the court noted that the FMLA packet did not include the materials necessary to convert, where to find the materials nor when the materials would be due if he was interested in continuing his coverage.
This is just one of several cases which demonstrates relying on the benefit plan documents or a generalized communication may not be sufficient. Employers need to be mindful they have an ERISA fiduciary duty to adequately inform participants of their benefits and provide complete information regarding the steps necessary to keep their insurance benefits, including portability and conversion.