Employee benefits consultants are often under the impression that group life insurance contracts are very simple.
This misunderstanding may lead to a benefits advisor being unaware or undereducated about certain provisions and features that can change dramatically the outcome of a life insurance benefit for an employee.
Describing group life insurance as “life is just life” is a dangerous misconception, especially when employers are switching group life carriers. Switching carriers may be risky if brokers and advisors fail to understand the differences between contract provisions.
Transitioning group life coverage demands careful attention to complex contractual features, such as the actively-at-work provision and provisions for waiver of premium, extension of benefits and credit for having prior insurance.
Having a reputable carrier with a knowledgeable sales representative is your best ammunition in the war for new business. Taking time to perform due diligence at the time of negotiation may seem like a lot of work, but dealing with potential issues in the early stages will yield high customer satisfaction and ensure long-term client loyalty.
Upon receipt of a request for proposal stating that an insurance carrier is waiving the actively-at-work requirement, your initial response is critical. In the heat of the proposal activity, it is easy to stick with the uninformed benefits advisor’s statement, “I’ll have to get back to you on that.” However, understanding and communicating what waiving the actively-at-work requirement means to your client will gain you respect and credibility as well as limit your exposure through possible legal implications and a damaged reputation. Being willing to communicate potential contract implications when the time comes to pay a claim adds to your reputation as a responsible benefits consultant.
As a professional benefits advisor, you must always ask the question, “Are there any employees who are not actively at work?” Such a question can facilitate a discussion with the policyholder, who may not be aware that the proposal is only offered on those employees who are actively at work. Acting as a consultant and being able to explain why carriers do not waive the actively-at-work requirement arbitrarily helps to reveal potential issues and appropriate solutions, thereby ensuring a smooth transition of the case.
When changing carriers, the basic premise of any employee benefits plan is that the covered employees are actively at work on a full-time basis. The prospective carrier’s proposal assumes that:
1) There are no known uninsurable individuals.
2) There are no employees absent from work because of sickness or injury.
3) All insured dependents meet the “not in the period of confinement” requirement.
If any of these circumstances exists, terminal (run-out) liabilities could be passed from one carrier to the next, changing the nature of underwriting and pricing for new life insurance prospects.
Other life contract provisions are equally critical to consider.
Waiver of premium is intended to extend life insurance coverage for a disabled employee at no cost to the employer or employee. Typical group life contract language allows an employee to qualify for waiver of premium if he or she becomes totally disabled prior to age 60 and is able to satisfy the definition of disability. Additionally, the employee must remain disabled for a minimum period of time, either 6, 9 or 12 consecutive months, depending on the contract. If an employee does not meet these requirements, the waiver of premium is nullified.
The waiting period also can differ by carrier, further emphasizing the need to understand how all the contract provisions interact. A common requirement is that the claim needs to be filed within 12 to 24 months of the disabling event or the waiver-of-premium privilege may be denied. On the positive side, if approved, the employee’s coverage can be protected for several years.
A knowledgeable employee benefits consultant will communicate various options available at the point of sale.
It is not a requirement, for example, for a new carrier to honor the remaining duration of an extension-of-benefits period, although this can be a viable option. If the carrier’s sales representative does not offer to include this provision, the advisor should request its inclusion and make the employer aware of its availability.
Other options to consider include applying a “prior insurance credit upon transfer of life insurance” amendment, issuing a waiver of the actively-at-work requirement, educating employees about the conversion privilege or delaying the effective date to lessen change-of-carrier impact on employees. Working with a carrier to offer one or more of these options will ensure the best possible transition.
Nobody wins in a poorly executed group life carrier transition, and everyone shares in the risk. All the participants in the transaction have certain liabilities: the employee who may lose coverage or benefits; the employer who does not fully understand its liability; the broker who may face an errors and omissions claim for alleged mishandling of the case; and the new carrier, for alleged lack of appropriate due diligence and counsel to the employer and broker.
Even when a reputable carrier is selected, employees can lose coverage if the transition is not handled carefully. In some cases, this may be unavoidable. With the transient nature of employment in the current market environment, employees do not always understand that they potentially are losing coverage, and it is not an obligation of the employer to refrain from moving the coverage for financial gain (in other words, controlling premiums).
The message here is clear: When you are working in the group life benefits arena, it is critical for you to work with someone who understands group life coverage. Don’t be dazzled by the lowest rate.
Julie Fried is vice president of marketing at Jefferson Pilot Benefit Partners, Omaha, Neb. She can be reached at firstname.lastname@example.org.