Life Insurance Coverage Governed by ERISA
Most large employers provide a benefit plan that may include benefits for life, health, disability, vision and/or dental. These benefits may be funded by a policy of insurance. Life insurance is an important benefit as it would pay the proceeds upon the death of the employer or, perhaps if coverage is provided, for the death of a spouse or child. Included in this life coverage is accidental death and dismemberment coverage (AD & D coverage) that pays only upon injury or death occurring by accident. Life insurance is a way to provide for the tremendous financial loss that is caused by a death in the family.
Life insurance seems rather simple, that is, you pay the premiums and upon a death the insurance company pays the benefit to the designated beneficiary(ies). However, there are many traps that may befall a claimant and many exclusions that prevent payment of the benefit. One trap deals with the fact that such benefits are governed by the Employee Retirement Insurance Security Act (ERISA). Any claimant on a life insurance policy governed by ERISA is at a disadvantage compared to a claimant on a policy that was purchased on an individual basis.
Another set of traps comes about in the enrollment process for the coverage on the employee and dependent(s). One trap may be the designation of a beneficiary(ies). For example, the applicant must determine if a domestic partner or a same-sex spouse can be covered by the policy. Also, in the instance where the spouse is designated as the beneficiary and there is a divorce, the applicant must remove the spouse as the beneficiary or determine if the ex-spouse can remain as the beneficiary without some action taken by the applicant.
Another trap in the enrollment process may be the failure to provide accurate information or make accurate selections, e.g., optional coverage, which could call the coverage into question upon the death of the employee or dependent.
While it sounds like the proceeds will be paid upon death, it is not that simple. There are conditions and exclusions regarding coverage that may allow the insurance company to escape paying the proceeds.
In the case of applying for coverage outside the enrollment period, the employee may have to provide evidence of insurability to obtain coverage or an increase in coverage. If this evidence is not provided to the insurance company, there will be no coverage.
Other conditions require that the employee by a full-time employee, be actively at work, be in a covered class of employees and complete the waiting period before coverage will become effective.
With respect to the AD & D coverage, there are conditions that the injury be caused by an accident and the injury be the sole cause of the loss. There are many exclusions from coverage such that benefits will not be paid, such as suicide, self-inflicted injuries, sickness, medical or surgical treatment, infections, war, while on active duty with the military, commission of a felony and participation in hazardous sports.
When an employee terminates his/her employment, there are issues with respect to continuing the life insurance coverage. This is referred to as porting the group coverage or converting the group coverage to an individual policy for the ex-employee. The time period and the conditions to continue coverage are found in the policy, and must be complied with or the opportunity to do so will be lost.
The Employee Retirement Income Security Act of 1974, P. L. 93-406 (“ERISA”), codified at 29 U.S.C. § 1001 et seq. and in other titles, is a “comprehensive and reticulated statute.” Pension Benefit Guaranty Corp., 116 U.S. 359, 361 (1980).