What Happens When an Employer Drops the Ball on Paying an Employee’s Life Insurance Premiums While That Employee is Disabled?

When an employee becomes disabled, it’s critical that they maintain essential benefits, such as life insurance, for financial protection. Life insurance, often provided as part of an employee’s benefits package, ensures a safety net for their family in case of an untimely death. However, complications can arise when employers fail to pay the premiums on life insurance policies while an employee is disabled, which can have significant legal and financial consequences.

Life Insurance Policies and Employment

Life insurance policies through employers are typically part of a group plan, which allows employees to receive coverage at lower premiums. These plans usually include basic coverage, and sometimes employees have the option to purchase additional coverage. Group life insurance policies typically remain active as long as the employee is working and the employer continues to pay the premiums.

However, when an employee becomes disabled, the situation becomes more complex. Many group life insurance policies include a provision for premium waivers in case of long-term disability, meaning that the policy can remain active without premium payments during the period of disability. But, the waiver is not automatic, and both employers and employees must meet certain conditions.

The Employer’s Obligation

When an employee becomes disabled, the employer is responsible for maintaining the life insurance policy as part of the employee’s benefit package. This includes paying premiums until the employee becomes eligible for the premium waiver or until the employer and employee agree on a change in the terms of the policy. Employers must continue paying the premiums to avoid lapsing the policy. Failure to do so could result in serious consequences for the employee, especially if they were relying on the coverage during a period when they are unable to work.

If an employer stops paying the premiums and the policy lapses, the employee may lose life insurance coverage entirely. This leaves the employee and their family without financial protection, which could be particularly devastating during a time of disability when financial resources are already strained.

Consequences of a Policy Lapse

If an employer neglects to pay the premiums and the life insurance policy lapses while an employee is disabled, the implications can be severe. The employee may be left without life insurance coverage, which could create significant financial difficulties for their family. Without coverage, the death benefit that would have been paid to the employee’s beneficiaries will no longer be available in case of the employee’s death.

For the employee, the loss of life insurance coverage may also mean that they cannot reinstate the policy at the same rate. Most life insurance policies include conditions related to health at the time of reinstatement, which may make it difficult or impossible for a disabled employee to reinstate the policy at an affordable rate—or even at all.

In addition to financial consequences, there are potential legal ramifications. Employees may have the right to take legal action against their employer for failing to meet their obligations under the terms of the insurance policy and employment contract.

Premium Waiver Provisions

Most group life insurance policies have a waiver of premium provision, which allows disabled employees to maintain their life insurance coverage without paying premiums. However, there are specific criteria that must be met for the waiver to be applied. Typically, employees must be classified as totally disabled, and the insurance company must approve the waiver. The waiver usually only applies after the employee has been disabled for a certain period, often six months.

Employers must notify the insurance company and ensure that the employee’s waiver of premium application is submitted in a timely manner. If the waiver is approved, the insurance policy will remain in force without the need for premium payments. If the waiver is not approved, the employer is responsible for continuing the premium payments to keep the policy active.

Employer Liability for Dropped Coverage

If an employer fails to pay life insurance premiums or fails to apply for the premium waiver when an employee is disabled, the employer may be held liable for the consequences of the policy lapsing. In many cases, this can result in a legal dispute between the employee (or their family) and the employer, especially if the employee dies without coverage and the family is denied the death benefit.

Courts have found employers liable for negligence in situations where they failed to meet their obligations regarding life insurance coverage for disabled employees. Depending on the jurisdiction and specific circumstances, the employer may be required to compensate the employee or their family for the value of the lost life insurance coverage.

The Role of the Insurance Company

Insurance companies play a role in the process, but their obligations differ from those of the employer. While the employer is responsible for paying premiums and maintaining the policy, the insurance company is responsible for approving or denying the premium waiver based on the employee’s disability. The insurance company may also provide notification if the policy is at risk of lapsing due to non-payment, although they are not required to intervene on behalf of the employee.

Insurance companies typically require proof of disability, such as medical records, to approve a waiver of premium. If the insurance company denies the waiver, the employer and employee must either continue paying premiums or risk losing the coverage.

Legal Recourse for Employees

Employees who lose life insurance coverage due to their employer’s failure to pay premiums may have several legal options. Employment contracts, benefits plans, and life insurance policies typically include specific terms that outline the employer’s responsibilities. If an employer fails to meet these obligations, the employee may be able to file a lawsuit for breach of contract.

In addition, employees may be able to pursue claims under state or federal laws that regulate employment benefits, such as the Employee Retirement Income Security Act (ERISA). ERISA sets standards for employer-provided benefits, including life insurance, and provides a mechanism for employees to file claims if their benefits are mishandled.

Steps Employees Can Take

To protect themselves from losing life insurance coverage due to an employer’s failure to pay premiums, employees can take several steps:

• Review the Policy: Employees should carefully review their life insurance policy, including any premium waiver provisions, to understand their rights and obligations. They should also understand the employer’s responsibilities and how premiums will be handled during a period of disability.

• Stay Informed: Employees should stay informed about the status of their benefits during any period of disability. This includes communicating with their employer and confirming that premiums are being paid or that a waiver has been applied for.

• Contact the Insurance Company: Employees can contact the insurance company directly to confirm that their life insurance policy is still active and that premiums are being paid. If there are any issues, the employee should address them as soon as possible to avoid losing coverage.

• Seek Legal Advice: If an employee suspects that their employer has failed to pay premiums or that their life insurance policy has lapsed, they should seek legal advice. An attorney can help them understand their rights and the legal options available for recovering lost coverage or obtaining compensation.

When an employer drops the ball on paying an employee’s life insurance premiums while that employee is disabled, the consequences can be significant. Employees may lose critical life insurance coverage, leaving their families vulnerable in the event of their death. Employers have a legal and ethical obligation to ensure that life insurance premiums are paid or that premium waivers are properly applied for. If they fail to do so, they may be held liable for the resulting financial losses.

Employees should take proactive steps to ensure their life insurance coverage is maintained during periods of disability, and they should seek legal advice if their coverage is jeopardized. The combination of understanding their rights and staying informed can help employees avoid the financial and emotional toll of losing life insurance coverage when they need it most.

FAQ

What should I do if my employer fails to pay my life insurance premiums while I am disabled?

You should first review your life insurance policy and any premium waiver provisions. Then, communicate with your employer to clarify the situation. If the issue remains unresolved, you can contact the insurance company and seek legal advice.

Can I sue my employer if they fail to pay my life insurance premiums?

Yes, if your employer fails to pay life insurance premiums and your policy lapses, you may have grounds for a lawsuit, particularly if this results in financial loss. Breach of contract or negligence claims could apply.

What happens if my life insurance policy lapses while I am disabled?

If your life insurance policy lapses, you and your family will lose coverage. This means that if you pass away, your beneficiaries will not receive the death benefit that was included in the policy.

Are employers legally required to pay life insurance premiums for disabled employees?

Employers are generally required to pay premiums as outlined in the employee benefits plan or employment contract. However, they may need to apply for a premium waiver if the employee becomes disabled and is eligible for such a waiver under the terms of the insurance policy.

What is a premium waiver in life insurance?

A premium waiver is a provision in many life insurance policies that allows disabled employees to continue coverage without paying premiums. The waiver typically applies once the employee has been disabled for a specific period and meets the conditions of the policy.

Can I reinstate my life insurance policy if it lapses due to non-payment?

Reinstating a life insurance policy after a lapse can be difficult, especially if your health has changed during the lapse. Reinstatement typically requires new medical underwriting, which may result in higher premiums or denial of coverage.

How can I verify that my life insurance policy is still active during a disability?

You can contact your insurance company to verify the status of your policy. They can confirm whether premiums are being paid or whether a premium waiver has been applied.

Can my employer cancel my life insurance policy while I am disabled?

Your employer cannot cancel your life insurance policy arbitrarily. However, if premiums are not paid and the policy lapses, coverage will end unless a premium waiver has been approved.

What is the Employee Retirement Income Security Act (ERISA)?

ERISA is a federal law that regulates employer-provided benefits, including life insurance. It provides protections for employees and offers a mechanism to file claims if benefits are mishandled.

What legal options do I have if my life insurance coverage is lost due to my employer's negligence?

You may have legal options such as filing a lawsuit for breach of contract, negligence, or making a claim under ERISA. Consulting with an attorney experienced in employment and insurance law is recommended.