Many families are shocked to learn that a loved one’s life insurance claim was denied due to a policy lapse that allegedly occurred before death. In employer provided life insurance cases, the lapse often has nothing to do with the insured.
Instead, the lapse is frequently caused by payroll or human resources errors that occurred without the employee’s knowledge and were only discovered after death.
These cases are far more common than most people realize.
How Employer Life Insurance Premiums Are Supposed to Work
Group life insurance premiums are typically paid through automatic payroll deductions. The employee relies on the employer to:
• Withhold the correct amount
• Transmit payments to the insurer
• Update status changes accurately
• Maintain active enrollment
When this process breaks down, coverage can be compromised even though the employee did nothing wrong.
Common Payroll and HR Errors That Lead to Lapse
We routinely see denied claims caused by:
• Payroll deductions stopping without notice
• HR failing to code an employee as active
• Incorrect classification as part time or terminated
• Leave of absence mismanagement
• Disability status entered incorrectly
• Employer switching payroll vendors
• Missed premium remittance by employer
• Enrollment data not transmitted to insurer
These errors often occur months before death and go unnoticed until the claim is filed.
Why Families Only Learn About the Lapse After Death
Most employees never receive notice that coverage has lapsed. Pay stubs may still appear normal or deductions may stop quietly.
After death, the insurer audits the employer’s records and retroactively claims that coverage terminated earlier. Families are then told the policy was not in force, even though the employee believed coverage was active.
Insurers Often Blame the Employee Anyway
Even when payroll or HR clearly caused the lapse, insurers frequently argue:
• The employee should have noticed missing deductions
• The employee was responsible for monitoring coverage
• The employer is not the insurer’s problem
These arguments are not always supported by the policy or the law.
Employer Errors Do Not Automatically Void Coverage
Courts often examine whether:
• The employee reasonably relied on payroll deductions
• The employer acted as the insurer’s agent
• Proper lapse notices were issued
• Coverage termination complied with plan terms
If the employee had no meaningful notice and no ability to correct the error, denial may be improper.
ERISA Adds Another Layer of Complexity
Most employer provided life insurance policies are governed by ERISA. Under ERISA, insurers and plan administrators have fiduciary duties.
Failure to properly administer premiums, enrollment, or notices can result in liability even if the insurer claims the policy lapsed.
Red Flags That Suggest an Improper Lapse Denial
Warning signs include:
• No written lapse notice sent to the employee
• Conflicting employer and insurer records
• Payroll deductions stopping without explanation
• Coverage termination dated retroactively
• HR admitting an internal error
These cases are often defensible with the right documentation.
What Beneficiaries Should Do Immediately
If a claim is denied due to lapse allegedly caused by payroll or HR issues:
• Request the full employer administrative record
• Obtain payroll and deduction histories
• Demand written lapse notices
• Preserve all HR communications
• Do not accept verbal explanations
Deadlines apply, especially in ERISA cases.
These Denials Are Often Reversible
We regularly challenge lapse denials caused by employer mistakes and recover benefits for families who were initially told nothing could be done.
Our firm handles denied employer life insurance claims nationwide. There is no fee unless benefits are recovered.
If your loved one’s life insurance claim was denied due to a lapse caused by payroll or HR errors, contact us for a free case evaluation.