Employer life insurance is any life insurance plan that’s offered through an employer. It can be a plan that the employer pays for or the employee pays for.
We recently represented a client whose spouse was covered under an employer life insurance plan.
Through our efforts, within a few weeks of the death, the spouse received an $800,000 claim check.
When life insurance is purchased through an employer Federal laws, rather than State laws, apply to any disputes. These federal laws are referred to as ERISA (pronounce Err-Ehs-Ah). ERISA laws almost always favor the employer and insurer, rather than a claimant. For example, if you sue an insurer for not paying an insurance claim, the most money you can be awarded is the claim amount.
If you sue an insurer under state laws you can be awarded the claim plus attorney fees and – sometimes – damages. For this reason, ERISA claims aren’t as attractive to attorneys as non-ERISA claims are. We accept all types of claims – ERISA and non-ERISA.
ERISA generally preempts state laws, particularly regarding claims for policy benefits. It generally overrides state law recognizing a community property interest of a spouse in the policy, as well as the state Family Code provision that effectively voids beneficiary designations in favor of an ex-spouse. ERISA favors strict adherence to plan documents to aid predictability and uniformity for the benefit of the plan administrator.
However, the Supreme Court has left open the possibility that a competing claimant could bring suit against the designated beneficiary after the beneficiary receives the policy benefits.
One challenge with employer life insurance plans is the record keeping of beneficiary designations. Many of these plans are administered without a licensed insurance agent and electronically. Someone who wants to change their beneficiary designation will often go to a secured website portal, login and make the change. Then they assume it’s been recorded correctly and they forget about it. It may not be revisited until the person is dead and a claim is made for the benefit.
It’s a good practice when changing a beneficiary designation to speak with the plan administrator on a recorded telephone call and have a witness involved. Keep copies of all paperwork – even if you make changes on a website.
Converting life insurance from Employer Paid to Self-Paid
When an ERISA plan participant loses employment status (quits, is fired, or is disabled and no longer considered an employee, for example), she has the right to convert her employer-sponsored life insurance policy to an individual policy. Why is this important? Because when converting, the participant does not have to submit health information to qualify for the new, converted life insurance policy.
Therefore, particularly for someone who lost employment status due to disability, it is a lot easier to carry over a life insurance policy than it is to qualify for an individual life insurance policy. After converting, the individual then is responsible for paying the life insurance policy premiums, which will probably be higher than the group rate previously paid by the employer.
Employers are not obligated to provide notice of the life insurance conversion right unless the plan so requires. Some Courts hold that once an ERISA plan always and ERISA plan. Other Courts hold that once you severe your employment and pay the premiums directly to the insurer, your life insurance is no longer an ERISA plan.
For our clients it makes no difference. We appeal denied life insurance claims whether they’re ERISA claims or not. If you need help with a denied life insurance claim contact us by phone now.