When individuals are covered by group life insurance plans provided by employers, they enjoy low premiums and do not have to worry about making a premium payment on time, since in most cases, premiums are taken out of their paychecks.
There are many other advantages to group life insurance coverage: help from employers’ HR departments, open enrollment periods, ease of increasing or decreasing coverage and dependent life insurance coverage. If an employee has a question about her benefits, she may simply speak with her employer’s human resources department and get answers.
What happens, however, if an insured is given wrong information by the insurer or the HR personnel and acts in reliance on the incorrect information?
Often, terms and conditions of a group life insurance are misinterpreted and misrepresented to employees. Employers and insurance companies routinely make mistakes that result in life insurance claim denials.
One of the most common situations resulting in a claim denial is where an insured employee stops working because of disability or retirement and receives a letter from her employer stating that her life insurance coverage will remain effective. This statement may or may not be correct. It depends what her group life insurance contract says about coverage during disability and retirement.
In cases where a policy does not cover retirement and disability, but a retired or disabled employee receives misrepresentations from her employer that the coverage will stay in effect, she may not seek additional or alternative coverage in reliance on her employer’s misrepresentations. After the employee’s death, her beneficiaries are faced with a denied life insurance claim, funeral costs and other financial burdens.
A life insurance claim in this case will be denied due to an insured’s failure to convert a group policy into an individual policy within 31 days starting at the date her employment terminated.
Conversion privilege states that if life insurance ends due to the end of employment, the end of membership in an eligible class, or reduction of benefits, an insured will be entitled to an individual policy of life insurance. The policy is usually issued by the same insurance company without evidence of insurability.
The individual policy is in an amount not in excess of the amount of life insurance which ends under a group policy. The insurance company extends coverage during the period allowed for conversion. Thus, if an insured dies during the 31-day period following the termination of insurance, the insurance company will pay the amount of life insurance for which an individual policy could have been issued.
Liability in such cases depends on the group policy and both the insurer and employer may be liable for a denied claim. Under the law, both the insurer and employer have a duty to act reasonably, prudently and in the best interests of the group plan participants.
Making misrepresentations about existence of life insurance coverage is not considered prudent on the part of the insurer and employer. A beneficiary whose claim has been denied due to failure to convert may recover the denied benefits with by filing a lawsuit against the insurance company and employer.
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