Recent DOL Guidance on Group Life Insurance Premiums & EOI Practices

Group Supplemental Life Insurance Basics

Group supplemental life insurance policies are common and desired income protection employee benefits. They are sponsored by employers, offered to employees (and often, their eligible dependents), and typically paid for via employee payroll deductions. Employees who elect group supplemental life insurance coverage designate a beneficiary, who would receive a financial benefit in the event of an employee’s death.

Evidence of insurability (EOI) is a standard industry requirement involved in the underwriting process of group supplemental life insurance policies. EOI is generally required when employees elect coverage after the initial eligible enrollment period or elect an amount of supplemental coverage above a threshold set by the insurance carrier, often called the “guaranteed issue amount.” Before being approved for coverage, EOI may entail a potential insured individual completing a simple questionnaire documenting their overall health. Other times, EOI might require more extensive inquiries, or medical examinations and/or testing considered necessary by the insurance carrier.

Recent DOL Investigations

These two recent DOL investigations focused on group life insurance policies underwritten by the carriers in question. The investigations concluded that both carriers collected group life insurance policy premiums from employee participants via payroll deductions without confirming that EOI requirements were satisfied, resulting in the participants and their beneficiaries believing they had coverage. After the participants died, the carriers denied claims on the basis that it lacked EOI.

Additionally, the Unum investigation determined that Unum commonly approved dependent life insurance coverage without requiring EOI, regardless of the policy’s exclusion for totally disabled dependents. However, if the dependent died within two years of the policy’s issuance, Unum would review their medical records to determine whether they were disabled from the time of enrollment until their death. If Unum found the dependent was disabled at the time of enrollment, it would then deny coverage, citing a delayed effective date of coverage. The investigation determined that Unum did not clearly inform participants or dependents at enrollment that coverage would be delayed under these circumstances.

DOL Settlement Agreements

Highlights of the DOL settlement agreement with Unum and Lincoln include the following:

1. Carriers are prohibited from denying a beneficiary’s claim based on the lack of EOI in instances where premiums were received by the carriers for three months or more.
2. Carriers may only request EOI from existing participants within the first year of them paying premiums.
3. Carriers cannot request or consider any information regarding a participant’s health condition, including a medical issue, diagnosis, or new prescription if it arises after the carrier receives the participant’s first premium payment.
4. For any claim denials related to EOI, carriers must credit the employer all premiums submitted on behalf of the participant for the portion of coverage requiring EOI at the time it provides the notice denying benefits.
5. Carriers will send notices to all new and existing employer group life policyholders stating that employers:
   • Must not collect premiums from any participant for life coverage requiring EOI until they confirm the carrier’s approval of that participant’s EOI.
   • May be liable to beneficiaries of the life insurance participant if they collect premiums from that participant for coverage requiring EOI without first confirming that the carrier has received and approved such EOI.
6. For any claim denials related to EOI, a notice will be provided directing the beneficiary to contact the carrier immediately if the beneficiary believes that the participant paid premiums for coverage requiring EOI for three months or more, or if the participant submitted EOI.

7. Unum’s dependent coverage claims denial practice: Unum may continue to deny death claims if filed within two years of the dependent’s coverage enrollment only if the dependent was continuously confined to home, hospital, hospice, or other similar health care facility. Otherwise, Unum cannot apply a delayed effective date of coverage and subsequently deny dependent life death claims.

   When applying the delayed effective date of coverage provision for disabled dependents, Unum may request and review a deceased dependent’s medical records only to determine or confirm their continuous confinement (as defined above) from the date the coverage would have otherwise been effective through the date of death.

   Furthermore, Unum must be more transparent to employers and participants regarding their delayed effective date of coverage provisions for dependents in these circumstances by updating applicable policy language.

Employer Impact

Similar to last year’s DOL settlement with Prudential, these recent settlement agreements continue to provide valuable insight into the DOL’s position regarding premium payment administration and EOI practices between an employer sponsoring a group life insurance policy and the insurance carrier. DOL Assistant Secretary for Employee Benefits Security Lisa M. Gomez is quoted in the Lincoln settlement announcement cautioning that “Workers pay premiums believing they will receive their promised benefits…Once workers pay these premiums, life insurance companies must verify that plan participants satisfy eligibility requirements. EBSA will not allow companies to neglect their responsibility for making timely eligibility determinations, collect premiums for months or years, and then deny payment of death benefits to beneficiaries because the company failed in its legal responsibility.” 

These settlements also serve as a potent reminder for employers and their applicable third-party benefit administrators to shore up their payroll deduction administration processes and EOI practices, in conjunction with their group life insurance carrier, to mitigate potential claims liability.

A recommended operational best practice for employers working with third-party benefit administrators is ensuring the administration platforms are programmed to only reflect payroll deductions up the guaranteed issue amount (the amount not subject to EOI) while EOI is pending. Once an employee’s (or their eligible dependent’s) EOI is approved by the carrier, the deduction amount should be adjusted to reflect the final approved supplemental life coverage and feed into the payroll system for said deduction.

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