Non-Medical Maximum

Jul 08, 2014

Typically group insurance has two advantages over individual products. First, the premium rates are lower than individual insurance as the risk is spread over the plan sponsor’s workforce. Second, everyone covered under the plan would be eligible for coverage without supplying medical evidence of good health at the time of enrolment.

But the second advantage has a qualification, particularly when it comes to the coverage for group life insurance and disability. All plan members are eligible up until a certain amount of coverage that the insurance company is willing to provide without the need for the employee to submit evidence of insurability. This is called the non-evidence maximum (NEM) or sometimes called the non-evidence limit. Insurance companies have a formula to determine the NEM amount which is typically based on the size of the employee group, the total amount of coverage and other factors. Generally, the larger the group, the higher the potential NEM.

With this structure in place, higher income earners are affected as they often would be entitled to an amount higher than the NEM. These individuals need to submit medical evidence to qualify for the higher amount. The medical evidence is then reviewed by the insurance company to determine the employees’ health and what level of risk they represent to the insurance company.

Let’s look the following example to help get a better understanding:

Plan Design for the long-term disability benefit:

  • Coverage: non-taxable benefit of 66 2/3% of monthly earnings
  • Non-medical maximum: $3,500 per month
  • Overall maximum: $8,000 per month
  •  Sam earns $54,600/year. The long-term disability coverage for Sam is calculated as follows: $54,600/12 months = $4,550 x 0.6667 = $3,034/ month

This means that the coverage of $3,034/month for Sam is below the NEM of $3,500/month. Therefore, medical evidence of insurability is not required and Sam will be issued the coverage he has applied for.

  •  Samantha earns $100,000/year. The long-term disability coverage for Samantha is calculated as follows: $100,000/12months = $8,333 x 0.6667 = $5,555/month

This means that the coverage for Samantha is held at the NEM of $3,500/month but qualifies for $5,555/month, an additional coverage of $2,055/month. At this point, Samantha will be asked to complete a medical questionnaire, also known the evidence of insurability form available from the plan administrator. The insurance company will render a decision if Samantha is approved for the additional coverage or will need to complete further medical testing for approval.

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