Group life standard provisions and conversion rights

Group life is one contract covering many lives

In group life insurance the contract (the master policy) is issued to a policyholder, usually an employer, union, association or trustee, and each covered person receives a certificate rather than a policy of their own. Florida lets a policy insuring more than one person be delivered only if it is issued to one of the eligible groups listed in the group life part of the Insurance Code.

Because the insured people never sign their own policy, the law writes their protections into the master policy. Florida's rule: no group life policy may be delivered in the state unless it contains, in substance, the standard provisions of sections 627.559 through 627.568, or provisions the Office of Insurance Regulation considers more favorable to the insured persons. The standard provisions written for individual life policies do not apply to group policies.

The standard group provisions

• Grace period: a period (typically 31 days) after a premium is due during which coverage stays in force. The policyholder, not the certificate holder, is generally liable for premium for coverage during the grace period.
• Incontestability: after the policy (and each person's coverage) has been in force for a set period, usually 2 years, the insurer can no longer contest its validity, except for nonpayment of premium.
• Application; statements are representations: statements by the policyholder or an insured person are treated as representations, not warranties, and generally cannot be used to contest coverage unless they appear in a written statement signed by that person.
• Insurability: the policy states any conditions, such as evidence of insurability, that a person must meet to become or stay covered.
• Misstatement of age: if an age is misstated, the premium or benefit is fairly adjusted to reflect the correct age; coverage is not voided.
• Payment of benefits: benefits go to the beneficiary the insured person designates.
• Certificate: the insurer issues a certificate for each insured person describing the coverage, to whom benefits are payable, and the conversion rights.

If a group plan is not term insurance, it must also contain a nonforfeiture provision the Office finds equitable, though it need not match the individual-policy nonforfeiture rules.

Conversion rights: keeping coverage when the group ends

The most tested group provisions are the conversion privileges:

• Conversion on termination of eligibility: when a person's coverage ends because they leave the job or the eligible class, they may buy an individual life policy from the same insurer without evidence of insurability, if they apply and pay the first premium within the conversion period (typically 31 days). The individual policy is priced at the person's attained age at standard rates, is usually any permanent form the insurer offers (commonly not term), and cannot exceed the amount of group coverage that ended.
• Conversion on termination of the policy: if the whole group policy ends, a similar but usually more limited conversion right applies, often only for people insured under the plan for several years and for a smaller maximum amount.
• Death pending conversion: if the person dies during the conversion period before an individual policy takes effect, the insurer pays the death benefit that could have been converted, whether or not an application was made.

Memory hook: when the group coverage ends, the window opens; no medical questions, attained-age rates, and the person is covered while it is open.

Florida-specific points

• Debtor groups are different. Payment of benefits, certificate, and all three conversion provisions (sections 627.564 through 627.568) do not apply to policies issued to a creditor to insure its debtors.
• Conversion rights can be assigned. A person insured under a group life policy may assign their incidents of ownership, including the privilege of having an individual policy issued under the conversion sections and the right to name a beneficiary. The insurer is protected for payments made or policies issued before it receives notice of the assignment.
• Out-of-state group policies covering Florida residents must generally comply with Florida's group life part. One exemption requires, among other things, that the policy provide the conversion-on-termination-of-eligibility benefit and that residents' certificates carry a notice, in contrasting color and at least 10-point type, that the benefits are governed primarily by another state's law.
• Replacement of a group plan. When a purchaser replaces or terminates a group life contract, the prior insurer stays liable only for its accrued liabilities and the extensions of benefits the statute requires.