Importance of Converting Your Life Insurance Coverage Upon Employment Termination

Employees in Chicago with group life insurance coverage through their employers rarely consider how to maintain that life insurance coverage when the employment ends. Usually, people are first concerned about continuing health insurance coverage under COBRA, especially if they have ongoing medical expenses. But most group life insurance policies contain continuation rights as well, known as “conversion” to an individual life insurance policy. The time limits to apply for this conversion are often short, usually only 30 or 31 days after the employment ends. But maintaining this coverage can be an important part of your overall planning, at least until you secure new employment with alternate group life insurance coverage. One recent case demonstrated the pitfalls of failing to apply to convert the coverage on time.

In Hayes v. Prudential Insurance Co. of America, No. 21-2406, 2023 WL 2175736 (4^th Cir. Feb. 23, 2023), Mr. Hayes had group life insurance coverage through his employment. He then lost his job as an environmental engineer. When his employment ended, so did his group life insurance coverage. But he had 31 days after his employment ended to convert the life insurance coverage to an individual policy. He missed the deadline by 26 days. His health then declined and he passed away. When his widow, Ms. Hayes, submitted a claim for life insurance benefits, Prudential denied the claim on grounds Mr. Hayes’ life insurance coverage lapsed, and he failed to convert the policy within the allowable 31 days. Ms. Hayes then sued under ERISA § 502(a).

The United States Court of Appeals for the Fourth Circuit upheld a district court decision ruling against Ms. Hayes. Ms. Hayes contended Mr. Hayes was legally incapacitated during the 31 day window. The court explained the evidence showed Mr. Hayes received timely notice of his right to convert the policy, so Ms. Hayes’ claim for benefits must fail. It also held that Ms. Hayes did not seek a remedy of equitable tolling under ERISA § 502(a)(3), so the court was unable to award the relief she requested under ERISA § 502(a)(1)(B), the sole section under which she pursued her claim. In the end, Ms. Hayes was left with no recourse.

If your employer provides life insurance coverage and your employment comes to an end, speak to an ERISA life insurance lawyer immediately to learn how to preserve your coverage until you can secure alternate group life insurance coverage.