Administering Life Insurance

On the whole, life group-term benefits are easy to administer because they do not require constant monitoring and hopefully don't generate many claims.

Enrolling employees. The insurance company should provide you with the necessary forms to enroll employees. Keep a copy of the employee's enrollment document for the employee's benefit file.

Designating a beneficiary. The beneficiary is the person who will get the money if the employee dies and the policy covers it. Sometimes the plan will allow people to designate several people as beneficiaries and to split the benefit into percentages. Impress upon employees how important it is to keep this information up to date by making changes to their beneficiary designation when appropriate; for example, if they get married, legally separated, or divorced, if they have a child, or when a spouse, parent, or other close relative dies. The insurance company should provide you with forms for this purpose.

Proof of insurability. Generally, with group-term life insurance, employees will not be asked to complete a medical questionnaire.

However, if you should offer the employee the option of purchasing additional life insurance to complement what you provide, employees who want to purchase that additional insurance may be required to complete a medical questionnaire. That questionnaire will either be provided directly to the insurance company by the employee or the employee may return it to you to submit to the insurance company.

Warning Some people keep a copy of everything to create a paper trail in case of a problem later. Don't make a copy of the employee's medical questionnaire. In fact, don't even look at it. You can suggest that the employee submit it directly to the company. You don't want to keep a copy because you don't want the employee to ever be able to say that you discriminated against him or her on the basis of a disability or medical condition that was disclosed on the form. This is particularly important for employers with 15 or more employees who are subject to the Americans with Disabilities Act, a federal law.

Processing life insurance claims. There's always the chance that one of your employees will die. This will no doubt be a stressful time for you as you try to maintain the flow of work in your business while grieving for the loss of your employee and coworker. Part of your duty as the employer will include filing for life insurance benefits.

In most instances, the situation will unfold this way: The employee's next-of-kin will call you to let you know that an employee has died or been killed. If that call comes, notify your insurance company. There will be forms that you need to complete to start the claims process rolling. You'll need a certified death certificate, which is usually available from the funeral home/crematorium or directly from the deceased employee's executor or next-of-kin. Make a copy of the completed claim form and any supporting documents for your files and be sure to submit the claim via registered or certified mail.

Terminating benefits. When an employee leaves, if you have group-term life insurance, some policies may allow a conversion privilege. What that means is that if your employees leave or otherwise have to terminate the life insurance offered by you, they may be able to get a private policy through the insurance agency. Generally these policies are much more expensive than the group-term policy that you'll most likely offer, and sometimes they have low coverage limits and require proof of insurability.