Group Life Insurance Only Pays on Those Who Were “Actively Working” at Time of Death
Employer life insurance, also known as group life insurance, is a common fringe benefit provided to employees at many companies. Employees qualify for coverage simply by virtue of their employment and don’t have to take a physical exam or go through any underwriting. Premiums are typically only a few dollars per month, with a payout around $25,000 or $50,000 in most cases. For larger organizations, insurance companies reap huge profits with relatively low risk, as the payouts are small, the employees are usually in a low-risk group, and coverage only lasts for as long as the employee is with the employer. Most workers leave their employer without dying, providing a huge windfall to the insurer.
An additional provision common to group life insurance policies makes them even more attractive to the insurance companies who sell them but less so to the employees who buy into them. Employer policies typically include a work-related restriction requiring that the employee be in an “active” working status at the time of death to be covered. The purpose of this restriction is to keep the insurance company from having to pay out on an employee who got sick and was either no longer employed or actively working at the time of death. Outside of accidental death, this scenario is not uncommon among worker fatalities, making group life insurance one more way for insurance companies to pretend to offer a benefit and collect premiums for years on a policy that will likely be denied if a claim is ever made.
You can find this restriction everywhere. One example is the California Basic Group Term Life Insurance Program. This program is a state-paid benefit for employees who are otherwise excluded from group plans because of their status as managerial, supervisory, or confidential employees or subject to other specified exclusions. California’s current carrier for this benefit is Metropolitan Life Insurance company, commonly known as MetLife. According to the terms of MetLife’s policy, “the employee must have been actively at work on the effective date to provide survivor benefits.”
An interesting twist to the work-related restriction was recently spotlighted in a consumer news story coming out of a Phoenix suburb. In March, Phoenix news station NTVK/KPHO reported on a Goodyear, Arizona, woman who submitted her story to the station’s “3 On Your Side” consumer investigative reporting segment after her life insurance claim was repeatedly denied. The woman’s husband had a $50,000 life insurance policy through his employer (a restaurant) which had been kept in force even after the restaurant shut down due to COIVD-19 restrictions. The man’s employer kept him on the payroll and continued paying his 40-hour weekly wage, which included a payroll deduction to cover premiums on a $50,000 group life insurance policy from Unum Insurance. After the man died last year, his wife submitted a claim, but the claim was denied because her husband was not “working” when he died, rendering the policy void in the eyes of the insurance company. The woman appealed to Unum twice and was denied twice. 3 On Your Side’s Gary Harper contacted the company, which again denied the claim, stating, “Under the clear language of the policy, Mr. Bennett was no longer covered on the date of his death, which occurred more than a year after he stopped working. We have carefully reviewed this case and we stand by our decision.”
This denial raises the question of what it means to be “actively working” for the purpose of a group life insurance policy. Clearly, the decedent in this case was not out of work or unable to work due to illness or disability. He was being paid his regular full-time wage even while the business was shut down, so for all other purposes, the decedent was an “employee” of the company and “on the payroll.” What does or should “actively working” mean? Does it mean that the worker must be on duty and keel over during a shift for the policy to come into play? What if the death occurs over the weekend or while the employee is on a two-week vacation? If “actively working” means “actively employed,” it seems that Unum got this one wrong in the case of the Arizona couple. If “actively working” means something different, insurance companies should spell out what it means so employees can decide whether or not to sign up for this benefit, which could be costing them hundreds of dollars a year, year after year.
Life insurance policies are complicated and highly technical, providing lots of cover for insurance companies to deny a claim. Sometimes they are justified and sometimes they aren’t, but it often takes expert assistance to know when they are playing fair and when they aren’t. Anytime a claim is denied and the reason rings hollow, it’s worthwhile to contact an experienced insurance attorney law firm. They’ll offer a free consultation and investigate your claim as needed, and if your claim was wrongly denied, they can recover the value of the benefit you are owed plus additional money damages for the harm a bad faith or wrongful denial has cost you. These cases are also typically taken on a contingency fee basis, meaning the attorney’s fees are taken out of what they recover for you, and if they don’t win your case, then they won’t charge you a fee.