Lessons Learned: Employees Are Entitled to the Amount of Life Insurance for Which They Pay

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Patricia Tsipras

June 20, 2024

The U.S. Department of Labor (DOL) recently announced a settlement with the Lincoln National Life Insurance Co. (Lincoln) that requires Lincoln to change its Evidence of Insurability (EOI) requirement (proof of good health) for participants in job-based life insurance plans.

EOI is healthcare information that an insurance company collects to determine the level of risk associated with extending life insurance to an individual.  Insurance companies typically collect the healthcare information via an application with questions (sometimes requiring documentation) about the individual’s medical history.  Insurance companies use this information to determine the individual’s eligibility for coverage and to determine the type and level of coverage that the company can offer.

The DOL investigated Lincoln’s administration of life insurance plans covered by the Employee Retirement Income Security Act (ERISA).  The DOL found that Lincoln often accepted premiums without verifying that individuals were insurable, leaving the individuals and their beneficiaries to believe that they had coverage.  Investigators learned that Lincoln often denied benefits claims after an individual died, claiming that it never received proof of insurability.  Lincoln’s denials left beneficiaries without the life insurance benefits for which their loved ones paid.

The DOL settlement prohibits Lincoln from denying a life insurance beneficiary’s claim based on the lack of EOI if the company has received premiums for three months or more.

With respect to living participants who failed to submit EOI, the settlement permits Lincoln to request EOI now only if

• Lincoln makes the request no later than one year from the date on which Lincoln first received premiums for the coverage; and
• Lincoln does not consider an individual’s medical issue, diagnosis, new prescription, etc. arising after the date that Lincoln received the individual’s first premium payment.

With respect to claims that Lincoln denies based on a lack of EOI, the settlement requires Lincoln to

• notify the beneficiary to contact Lincoln if they believe premiums for the coverage were paid for three months or more; and
• refund all premiums paid for the denied coverage.

The settlement follows similar agreements that the DOL reached with Unum Life Insurance Co. of America in May 2024, United of Omaha Life Insurance Co. in September 2023, and Prudential Insurance Co. in April 2023.  Investigations of other life insurance companies are pending.

Employers: Do not collect or submit premiums for life insurance requiring EOI until you receive notice that the insurance company has approved the EOI.  Doing so may expose you to liability.  Request that any insurance company provide proof to you and your employee of all lines of coverage.

This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice.  Always consult an attorney with specific legal issues.