Switching Life or Disability Carriers? What Employers Should Double-Check

Revised December 2023

4 min read

It is inevitable that at some point in time, schools, cities and counties will have to switch life/disability insurance carriers in order to get better rates, a better plan design or improved customer service. To ensure that no employee falls through the cracks during the transition, here are several important considerations public sector employers should be aware of.

Does the new plan match benefits of the old plan? Does it correspond with the way you administer benefits? Does the new policy mirror your employee contract language? Ask your agent to carefully review your old and new policy side by side, or examine it yourself. Determine if there are any differences, no matter how subtle. One carrier’s standard definition of a benefit may be slightly different than another carrier's standard definition. It’s kind of like defining the color blue – is it baby blue or sky blue? The definition determines whether or not a claim is eligible to be paid.

Here are 5 common mistakes public sector employers sometimes make and how to avoid them:

1. Failing to Compare the New Policy's Leave of Absence Language with Your Organization's Practices How do you administer your leave of absence with regard to benefit eligibility? Do you allow employees on an approved leave of absence to continue benefits; is there a limit on how long an employee can be out on a leave of absence? Do you have different requirements for different types of leaves (for example:  paid leave of absence, unpaid leave of absence, leave due to sickness/injury, sabbatical leaves, etc.)? Verifying that your new policy addresses these is important to ensure your employees are covered if they are not actively at work due to a leave of absence.
2. Not Reviewing the Life Insurance Reduction Schedule The life insurance reduction schedule is an important section to check against your employment contracts/agreements. Life insurance plans will either have no reductions and terminate when the employee retires/resigns; or they will have a reduction in coverage starting at a certain age (for example: benefits will reduce to 65% upon attainment of age 65, will reduce to 50% upon attainment of age 70 and terminates upon retirement). Having a reduction schedule in your policy helps keep costs down and helps lower a group’s overall claims experience/history.
3.  Not Comparing Your Pre-Existing Condition Exclusions with Your Previous Plan Most carriers add a pre-existing condition limitation to their plan. A pre-existing condition is a medical condition that an employee was treated for before they obtained insurance. Coverage due to a pre-existing condition may be excluded for a certain period of time within a policy. If your previous policy did not have this limitation, it could be a tip-off that this exclusion is in direct conflict with your employment contract. Check your employee contract.
4.  Not Looking at the Disability Limitations Another section you should examine closely is the disability limitations. A disability limitation is a type of illness or injury that has limited coverage or no coverage. The most common types are for mental/nervous disabilities or drug/alcohol related disabilities. In some instances, there are limitations for self-reported symptoms (for example – fibromyalgia). Be sure to make sure your old policy matches your new policy in regards to limitations.
5. Failing to Identify and Disclose Employees Who Are Not Actively at Work When transitioning to a new carrier, make sure that you identify all of your employees who are not actively at work. Have a complete list handy. Some insurance carriers require employers to complete an "Actively at Work Statement", where you will list your non-active employees. The statement includes information such as employee’s name, last day worked, expected return-to-work date and reason for absence. Employers find this statement useful to keep track of which carrier will cover these employees after the transition and to ensure that no one is missed. Actively at work means an employee that is able to perform all of their regular job duties and meets the eligibility requirements. Employees that are not actively at work may include those who are out on disability, out on leave/sabbatical or have a waiver of premium. Employers should check with the in-force carrier to ensure that these employees are covered and will continue to be covered under the new carrier.  If an employee is omitted during the transition phase from one carrier to the next, it could lead to a potential sticky situation where both carriers decline to cover an employee.

For more information on ancillary benefits or changing insurance carriers, contact your NIS Representative.