Group Life Insurance Conversion Rights Upon Termination of Employment

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 option that allows the insured to 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 ERISA 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. In this article, our life insurance lawyers will explain everything you need to know about group life insurance conversion rights and what beneficiaries should do if the claims have been denied.

Definition: What Is the Life Insurance Conversion Privilege Under a Group Policy?

The conversion privilege is a life insurance option that entitles an insured employee to convert their group life insurance policy into an individual policy if their policy ends due to termination of employment, the end of membership in an eligible class, or reduction of benefits. The policy is usually issued by the same insurance company without evidence of insurability (submitting to a medical exam or completing a new life insurance application form).

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How Does the Conversion Option Work?

The individual policy is in an amount not in excess of the amount of life insurance that ends under a group policy. The insured can convert their term policy into permanent life insurance during the conversion period by filling out a conversion form. They will not need to go through underwriting again, but their age is factored in when converting.

Conversion Period: How Long Does the Insured Have to Convert a Group Life Insurance Policy?

Generally, an insured must apply and pay the first premium for the individual whole life insurance policy within 31 days after their group life insurance ends. If they do not receive written notice of the right to convert at least 15 days before the end of these 31 days, they will have additional time to convert. This right must be exercised by the earlier 15 days after they receive written notice or 91 days after their group life insurance ends. The right to convert will end 91 days after their group life insurance ends, whether or not they have received this written notice.

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.

Life Insurance Conversion vs. Portability

When leaving a workplace, the insured has two options for keeping the life insurance coverage provided by the employer: conversion and portability.

Group life insurance conversion allows the employee to convert to an individual whole-life (or permanent life) insurance policy. Conversion to a whole life premium plan will result in a life insurance policy that remains in effect for the rest of the insured’s life. Whole-life insurance builds cash value that can be borrowed against or used to pay future premiums. Portability means continuing the group term life coverage offered by the employer along with some, but not all, of the optional benefits, included. The insured becomes responsible for the premiums when they choose either option. 

Read our guide on life insurance portability to learn more.

Employer Fiduciary Obligations Concerning the Life Insurance Conversion Privilege

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 death benefits if it failed to do so.

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Notify of Conversion 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 but failed to do so, the employer may be liable for the denied life insurance claim.

Any notice that an employer or an insurance company provides should be 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 the following:

  1. The date his/her group life insurance coverage will end;
  2. The deadline for submitting a conversion application;
  3. Step by step instructions on how to convert the group policy into an individual policy; 
  4. The premium amount, due date and how to pay it;
  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 right, the employer may be liable for the total amount of the denied life insurance claim. 

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What Happens if the Insured Fails to Convert the Group Life Insurance

To make sure employees retain coverage under a converted policy, they must apply for coverage conversion by a designated deadline. Many group policies set forth the process and applicable deadlines for submission of a conversion application. When an insured neglects to follow the instructions outlined in the policy, the insured risks a life insurance lapse. However, an insured may be relieved of this duty if there are extenuating circumstances, if they did not 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’s conversion right

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

What recourse do you have as a beneficiary whose ERISA claim has been denied due to failure to convert coverage? You may have a claim against the insured’s employer and the insurance company for the total amount of the denied claim. Our attorneys are here to help you navigate the ERISA claim or appeal process and recover the life insurance death benefit you are entitled to.

Here is a case related to denial due to conversion privilege, or lack of coverage, successfully handled by our ERISA lawyers:

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

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About the author

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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