When individuals have a life insurance policy provided by their employer, such life coverage is called group life insurance. When the insured stops working for the employer, continuous coverage may be available if the group plan offers a Conversion and/or Portability option that allows the insured to port or convert their group coverage into an individual policy. 

This privilege comes with obligations for the employer and/or insurance company to give notice of conversion rights and for the employee to choose an option and apply for such coverage by a designated deadline. When employers or insurance companies fail to notify insureds whose employment terminated, coverage may be lost. 

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.

Conversion Privilege: What Does It Mean to Convert a Life Insurance Policy? 

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.

What Does Life Insurance Portability Mean?

Portability means continuing life insurance coverage of the same format and amount when the insured changes employers or retires. When an employee has group life insurance provided to him by his employer, that plan is in force for as long as the employee is actively working. When an employee is terminated, retires, or changes employment, the group coverage may no longer be available to him. In such cases, the insured will ask to port his coverage or, in other words, change it to an individual plan providing the same protections. The employee needs to apply for portability within the time frame listed in the policy.

What Happens If You Fail to Convert or Port Your Group Life Insurance?

To make sure an insured carried coverage under a converted or continued policy, she must have applied for converted or continued coverage by a designated deadline. Many group policies set forth the process and applicable deadlines for submission of a conversion application or a portability request. When an insured neglects to follow the instructions outlined in the policy, the insured risks a lapse in coverage. However, an insured may be relieved of this duty if there are extenuating circumstances if she didn’t receive a copy of the policy or if the employer failed to notify of policy changes or provided incorrect or misleading information regarding the insured conversion or portability right.

group life insurance conversion rights

Employer Fiduciary Obligations Under ERISA

If a group policy offers a conversion privilege, the procedure for applying for it is usually outlined in the section titled “Conversion” which specifies whether the insurer or the employer has an obligation to inform the departing employee of his/her conversion rights. If the employer fails to notify the employee whose employment terminated of how to convert, the liability for a denied claim may fall on the employer. Similarly, the insurance company may be in breach of its fiduciary duty under ERISA if it had an obligation to inform but failed to do so. 

Give a Copy of the Policy to the Insured

Needless to say, an insured cannot comply with the policy’s continuation or conversion application deadline if the insured was never provided with a copy or the policy or an access to the plan documents. In the majority of group life insurance cases, the plan administrator must provide a copy of the policy to all participants in the plan and may be liable for denial of benefits if it failed to do so.

Notify of Conversion & Portability Rights

Most group life insurance plans are subject to ERISA. ERISA does not impose a duty on a plan to provide notice to plan participants other than the summary plan description and information of the benefits plan. Although ERISA does not require insurance companies or employers to provide an insured additional notice of a right to continue or convert coverage, some plan employers assume this duty voluntarily. If an employer promised an insured to send her all the necessary notices for conversion or portability but failed to do so, the employer may be liable for the denied claim.

Any notice that is provided by an employer or an insurance company should be clear and unambiguous. Some examples of misleading or ambiguous conversion notices are notices that do not inform an insured of the deadline or the procedure for applying; notices sent to the wrong address or the wrong person, notices received by an insured after the deadline for applying, etc.  

A clear conversion notice will inform the departing employee of 1) the date his/her group life insurance coverage will end; 2) the deadline for submitting a conversion application; 3) a step by step instruction on how to convert the group policy into an individual policy; 4) the premium amount and due date; 5) what happens if the death occurs during the conversion period. 

Provide Accurate Information About the Policy Changes

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. If an employer provided incorrect or misleading information regarding an insured’s conversion or portability right, the employer may be liable for the total amount of the denied life insurance claim. 

conversion privilege life insurance

Contact an ERISA Lawyer If Your Claim to Group Life Insurance Benefits Has Been Denied

What recourse do you have as a beneficiary whose claim has been denied due to the insured’s failure to convert or port coverage? You may have a claim against the insured’s employer and the insurance company for the total amount of the denied claim. 

Here are a few cases related to denial due to portability, conversion privilege, or lack of coverage, successfully handled by our ERISA lawyers:

Call our life insurance attorneys at 1-888-510-2212 for a free consultation.