Do your clients have plan administration liability coverage?

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What would you do if a client faced the following nightmare? A factory worker named Jim gets a promotion and a significant pay increase, doubling his life insurance coverage from $50,000 to $100,000 in the process.

Soon after starting the new job, he dies in the factory, and his family, while grieving through the trauma, discovers that the company’s insurance plan administrator forgot to update Jim’s insurance file.

He has $50,000 of coverage, but not $100,000. And the insurer won’t budge. Your client now has a $50,000 problem and a lawsuit on its hands, as the family sues the factory.

Plan administrators are human and they can make mistakes, but, for little cost, a client can insure itself against costly mistakes with something called ‘plan-administration liability coverage.’ Not many folks have heard of this, so it’s something you, as an advisor, should look into and suggest.

“This liability insurance covers authorized individual plan administrators and executives,” says Chris Gory, an employee benefits consultant and owner of Insurance Portfolio Financial Services Inc. Both individuals and company are covered.

“Note the word ‘authorized’,” Gory says. “The insurance covers only those authorized as plan administrators. If the human resources department has two staff, make sure that both are authorized plan administrators, so that both can be covered in case of a mistake.”

Read Part 2 for more.

Transcontinental Media G.P.