You have employees working remotely in a different state, or even a different country. How can you effectively offer them life insurance? Read on to find out.
But first, a brief primer on life insurance as an employer-provided benefit.
What Kind of Life Insurance Can I Offer as an Employee Benefit?
It is your choice. It is most common for employers to offer some Term Life Insurance free to their employees. Typically a Basic Group Term Life Insurance policy might provide coverage in the amount of $25,000 or $50,000, or be keyed to an employee’s yearly salary, or a multiple of two or three times the yearly salary.
What is Term Life Insurance?
Term Life Insurance policies have no present cash value, and they are offered for a pre-set time period such as 10, 15, 20, or 30 years. Term policies pay a lump sum death benefit to the employee’s designated beneficiaries upon the death of the employee.
Contrast this with Whole Life Insurance policies, which do have present cash value and can be cashed out, but then there will be no death benefit.
There can be add-ons, such as Group Accidental Death and Dismemberment (called “AD&D”) or Business Travel Accidental Insurance. You can also offer additional amounts of coverage that the employee would pay for.
ERISA Controls the Policies of Your Domestic Remote Employees.
Federal law, the Employee Retirement Income Security Act of 1974 (“ERISA”), controls many types of employee benefits including life insurance. ERISA supercedes state law where state law differs, but does not apply to government workers such as teachers and police officers, or to church employees where the church has not opted in.
There are “individual” and “group” life insurance policies. Typically ERISA governs the type of Group policies that are offered by employers as an employee benefit. Individual policies, purchased by an individual through an insurance agent, are typically not covered by ERISA.
ERISA controls a group life insurance policy if the employer pays all or part of the premiums; participation is involuntary; the employer received some consideration for administering the policy.
Under ERISA, the law governing the administration of your Group Term Life Insurance policies will be uniform state-to-state. This streamlines the life insurance application, claim, and conversion process and requirements. Your Human Resources department must be familiar with the requirements of ERISA as failing to adhere to them can result in employer liability for an employee’s designated beneficiary’s claim.
ERISA exclusively provides remedies for insureds and beneficiaries who have been denied benefits under a Group Term Life Insurance policy.
The insured or beneficiary may sue “under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). An insured or beneficiary sues the plan administrator (the employer!) or the claims administrator (the insurer).
An insured or beneficiary may be entitled to attorney fees and interest if successful. 29 USC § 1132(g). While a fee award is discretionary,. ERISA creates a presumption in favor of a fee award “unless special circumstances would render such an award unjust.” McElwaine v. US West, Inc., 176 F.3d 1167, 1172 (9th Cir. 1999).
A prudent employer will ensure that HR is well-versed in ERISA’s requirements for plan administration.
You Have a Mandatory Responsibility to Provide the Required Documents, Notices and Conversion Applications
In short, as the plan administrator the employer has a strict fiduciary responsibility to the insured. ERISA provides that all employees participating in the employer-provided group life insurance policy are entitled to:
For Employees Living or Travelling Abroad
- Receive information about the plan and benefits, such as the plan name, address, contact information, and how to file a claim;
- Examine (without charge) all documents governing the plan, including any contracts or collective bargaining agreements, as well as the latest annual report filed by the plan with the U.S. Department of Labor;
- Obtain copies of these documents;
- Obtain a copy of the plan’s annual financial report;
While ERISA contains no requirements that employers give notice of termination or right to convert the group plan to an individual plan, if the group plan imposes this responsibility then he or she is entitled to whatever termination, notices, and applications set forth in the plan itself.
Because dealing with ERISA can be thorny, many employers hire a third-party administration provider to service their group plan. If you decide to do this be sure to shop around for a service provider with a reputation for successful administration, with few adverse claims.
For Employees Living or Travelling Abroad, You and They Must Address Where They are Living or Travelling
If your employee dies while abroad, where the employee was, how long the employee was there, and what the employee was doing at the time will be factors the insurer takes into consideration when What is Term Life Insurance?
determining whether to pay the employee’s beneficiaries’ claims. Also, if the claim is denied, whether you as employer provided the required plan information to the employee will be scrutinized and the denial may be overturned – leaving you responsible.
Visiting Dangerous or Underdeveloped Countries
If an employee dies abroad, insurance companies look to where the employee was living at the time of death. Insurers place foreign countries in one of three categories: acceptable for travel;
acceptable for travel but with limited coverage depending upon time spent there; and unacceptable for travel.
Insurance companies look at the stability of its government, available travel services, general industry data, public health and sanitation standards, and the quality of medical facilities found there. Under this rubric, countries with stable governments and economies and no natural disasters are the lowest risk and therefore acceptable for travel. In contrast, those countries suffering from war or revolution or famine or flood or the like are unacceptable for travel.
All employees should be provided this information as part of the disclosures required by ERISA, to ensure that the employees are aware of any limitations on travel that affect their life insurance coverage.
How Long Will the Employee Be Out of the Country?
If an employee plans a brief trip abroad of days or even weeks, likely there will be no effect on his or her life insurance coverage. However, if an employee lives abroad or plans to travel more than six months abroad the employee should be notified that the insurer could consider the employee a “non-resident” and put a hold on their life insurance coverage until they return.
If the employer seeks to maintain residences both in the U.S. and another destination, this must be disclosed to the insurance company, who will examine the risk factors set forth earlier and determine whether premiums need to be increased, or whether the policy must be cancelled altogether.
Will the Employee Engage in Any “High-Risk Activities While Abroad?
Last, the employee should know, from the required disclosures, whether his or her coverage is at risk if he or she plans to engage in any activity considered “high-risk” by the insurer. An insurer can deny claims based on excluded deaths, however, if the employee never received notice that there were certain activities that are not covered by the policy, that denial can be overturned and again, the employer is responsible.
About the Author
Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She works frequently for busy Philadelphia life insurance attorney Chad G. Boonswang, Esq.
