When an employee is terminated or retires, a legal right (subject to certain conditions) called a conversion privilege comes into play. This conversion privilege allows the employee to convert what was group term life insurance into individual protection through the issuance of a personal contract.
When an employee quits or is fired or the employee continues working but the master contract is terminated, he generally has thirty-one days in which to apply for a converted policy without submitting evidence of insurability. That new individual policy may be any of the insurer’s permanent life policies in an amount up to but not exceeding the term coverage. The insurer is not allowed to apply a rating (an extra premium charge for impaired health or avocation), and must issue the policy at its standard premium. The premium will be at the insured’s attained-age (nearest birthday) rates for up to a specified maximum face amount.
If an employee is laid off, granted a leave of absence, or is disabled for a short period of time, at the employer’s discretion, (but on a non-discriminatory basis) coverage can be continued for some limited period of time (e.g., six months), but the individual employee will be responsible for payment of the premiums. Coverage will be terminated at the end of that continuation period. At that point, the insured has the right to the extension of benefits as well as the right to convert the term coverage to a permanent individual policy.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM