Group life, credit life, replacement and nonforfeiture in Texas

Texas Group Life Insurance Provisions and Conversion Rights

In Texas, an employee group life policy must cover at least two employees at the time it is issued (Tex. Ins. Code §1131.204(a)). If the group policy is noncontributory, meaning the employees pay no portion of the premium, it must insure all eligible employees or all eligible employees except those who lack satisfactory evidence of insurability (Tex. Ins. Code §1131.204(c)). A group life policy delivered in Texas must contain the required statutory provisions or provisions the commissioner considers more favorable to the insured, or at least as favorable to the insured and more favorable to the policyholder (Tex. Ins. Code §1131.101(a)). Note that the standard provisions required for individual life insurance policies do not apply to group life insurance policies (Tex. Ins. Code §1131.101(b)).

Subject to policy terms, an insured individual may make an absolute or collateral assignment of all rights and benefits under a group life policy to any legal entity other than the insured's employer (Tex. Ins. Code §1131.006(a)). These statutory assignment rights apply without regard to the date the policy was issued (Tex. Ins. Code §1131.006(b)). Group policies may also extend dependent coverage. Coverage may be extended to a natural or adopted child who is younger than 25 years of age or an older age stated in the policy (Tex. Ins. Code §1131.802(2)(A)), or a natural or adopted child of any age who is physically or mentally disabled and under parental supervision (Tex. Ins. Code §1131.802(2)(B)). Coverage may also extend to a natural or adopted grandchild younger than 25 years of age or an older age stated in the policy (Tex. Ins. Code §1131.802(3)). If a group policy covers family members or dependents, it may provide for the continuation of any part of those benefits after the insured employee's death (Tex. Ins. Code §1131.151(a)). Under Tex. Ins. Code §1551.254, an accelerated benefit paid under a rule adopted by the board of trustees for an eligible participant must be deducted from the death benefit otherwise payable.

When group life coverage ceases because employment or membership terminates, the individual is entitled to convert to an individual life policy without disability or supplementary benefits (Tex. Ins. Code §1131.110(a)). You must know that the individual has to apply for this converted policy and pay the first premium no later than the 31st day after employment or membership terminates (Tex. Ins. Code §1131.110(b)). The insurer must issue this policy without evidence of insurability (Tex. Ins. Code §1131.110(c)). The individual may select any individual policy customarily issued by the insurer at the applicant's age and requested amount, except a term life policy (Tex. Ins. Code §1131.110(d)). The face amount cannot exceed the group coverage amount that ceased upon termination (Tex. Ins. Code §1131.110(e)), excluding any amount that matured as an endowment payable on or before the termination date (Tex. Ins. Code §1131.110(f)). When group term life coverage terminates for an insured spouse because the employee terminates employment, dies, or the group contract terminates, the spouse has the same conversion rights as the employee (Tex. Ins. Code §1131.354). Note that conversion rights upon termination of employment or membership do not apply to a policy issued to a creditor to insure debtors (Tex. Ins. Code §1131.110(h)(1)).

A separate conversion rule applies when an entire group policy terminates or is amended to cancel coverage for an entire class. An individual whose coverage terminates in this situation is entitled to an individual policy if the individual was insured under the group policy on the termination or amendment date and for at least five years before that date (Tex. Ins. Code §1131.111(a)). In this scenario, the group policy may limit the individual policy amount to the lesser of $2,000 or the coverage that ceased minus any life insurance for which the individual is or becomes eligible under a group policy issued or reinstated within 31 days (Tex. Ins. Code §1131.111(b)). For example, when Mateo leaves his employer, he can convert his full coverage within 31 days with no health questions, but if Mateo's entire company plan is canceled, he must have been covered for at least five years to convert, and his converted amount may be limited (Tex. Ins. Code §1131.110(b), Tex. Ins. Code §1131.111(a)-(b)).