Buying group life insurance at work is an easy way for employees to get the coverage they need. But for the employers who offer it, there are many administrative details to consider. In this two-part series, we’ll cover 10 things employers should understand when administering their plan.
The first five:
1. Evidence of insurability (EOI): Employers need to fully understand the carrier’s policies on EOI and when it’s required.
- Employers should not withhold payroll deductions for EOI-required coverages until after they receive carrier approval. Employees need to understand that their coverage is not effective until this approval comes in.
- Make sure employers and employees fully complete their respective parts of the application. This helps facilitate timely and accurate EOI decisions.
2. Continuation of coverage: This provision helps ensure that employees who aren’t actively at work (e.g., those on disability leave, temporary leaves of absence, sabbaticals, etc.) are still covered under their group’s life insurance coverage.
- Employers should explain the availability of the continuation of coverage provision and administer benefits as outlined in the policy. Some employees may not even know they have these benefits while they’re on leave, and others may assume they are covered when they're not.
- Coverage is typically extended to qualified employees for up to 12 months if they’re out of work due to injury or illness, as long as premiums are paid. If premiums aren’t paid, coverage ends.
3. Waiver of premium: This benefit allows employees who become disabled for an extended period of time to continue their life insurance coverage without paying premiums.
- Provisions and processes for obtaining these benefits vary among carriers. Employers should carefully review their policy so they know what’s included.
- Be aware that these benefits generally terminate when an employee reaches either age 70 or the normal Social Security retirement age. If a waiver of premium is denied, covered individuals may be able to convert their group policy to an individual policy, as further discussed in the next section.
4. Portability and conversion: These provisions are offered with most group life insurance policies as a way to ensure coverage continues after employees leave an employer. Portability is a provision that typically allows coverage to continue under a group term policy for a limited time after leaving employment, while conversion transitions coverage to an individual permanent life insurance policy.
- Employers should know how portability and conversion are affected by waiver of premium and continuation of coverage provisions. For example, portability may not be available for an employee whose coverage is being continued pursuant to a continuation provision, or who has applied for waiver of premium benefits.
- It’s also the employer’s responsibility to inform all employees who are no longer eligible for coverage of their portability and/or conversion options. Creating a letter and keeping it on file for on-demand use can be helpful. In some cases, employers require that employees acknowledge receipt with a signature.
5. Age reductions: Most group life insurance policies have “life age reduction” schedules that gradually reduce the available death benefit for employees as they get older, typically starting at age 65.
- Employers who self-administer their bill need to remember to apply the reduction each year and understand when reductions begin. Employers who use list-bill will see this as a decrease on employee benefit amounts from the carrier.
- To help avoid confusion, employers should carefully note the policy’s rules for age reductions—premium payments should always be paid on the current amount of coverage.
We’ll continue our discussion of group life insurance coverage next week. Stay tuned!
