Understanding Excess Coverage and Non-Evidence Maximums
This article is intended for plan members who are looking to understand what a non-evidence maximum (NEM) is, and why they may be invited to apply for additional amounts of coverage for benefits such as life, accidental death & dismemberment, disability, critical illness etc.
How does benefit coverage work?
To better understand how NEMs and excess coverages work, let’s first discuss how benefit coverage typically works by way of a couple of examples. For purposes today we will keep the examples simple and assume that your benefit coverage is based on your earnings.
Example 1: Long Term Disability Insurance
Long term disability insurance provides you with financial security in the event you become disabled and are approved by the insurance carrier for the disability benefit. If you become disabled and cannot work for an extended period of time the long term disability benefit provides you with a monthly payment to help you pay for your regular everyday expenses such as groceries, utilities, mortgage/rent payments etc.
Disability coverage is typically based on a percentage of your earnings. For example, the benefit could payout at 66.67% of your earnings. As your earnings increase your cost of living typically follows suit. Ensuring that you have enough long term disability coverage to cover your everyday expenses is an important consideration when determining whether or not to apply for additional coverage.
Example 2: Basic Life Insurance
The group life insurance benefit provides a one-time payment to your named beneficiaries in the event of your death. Like disability insurance, this benefit is typically also based on earnings. For example, the benefit could payout at 2 times your annual earnings. In other words, if you are earning $100,000 annually you would be entitled to a benefit of $200,000.
As your earnings increase you may be entitled to apply for additional life insurance coverage. It is important to consider whether or not the amount of coverage you have in place will meet the needs of your beneficiaries should you pass away.
What exactly is an NEM?
A Non-Evidence Maximum (NEM), sometimes also referred to as a Non-Evidence Limit (NEL) is the highest amount of coverage a plan member can receive without having to complete a medical questionnaire to apply. Another way to think about this is that it is the maximum amount of overage you are guaranteed to receive, subject to your earnings. It is important to note that not all plans have an NEM, but there’s a good chance yours does, if you are reading this article.
Let’s illustrate how an NEM works with an example:
Let’s say your plan calculates your group life insurance coverage based on two times your annual earnings. So, if your annual salary was $100,000, you would be entitled to a $200,000 life benefit. Pretty simple so far.
Now let’s say that your plan has a $225,000 NEM. If your salary becomes $125,000 you would be eligible for $250,000 in group life insurance coverage. However, because of the $225,000 NEM, you would only automatically receive the $225,000 that your plan guarantees. The insurance carrier must approve you for the additional $25,000 in coverage. When this additional or excess coverage is available to you you will be invited to apply, if you wish, for the additional coverage.
What happens when more coverage is available to me?
When your salary changes so will your coverage amount. Your coverage will automatically increase with no need to apply until your coverage amount exceeds the NEM amount defined on your plan. Once your eligible coverage exceeds the NEM you will receive a notice inviting you to apply for the additional coverage. Coverage beyond the NEM is optional, so it is up to you whether you want to take advantage of the additional coverage or not. The information you receive will indicate if there is any cost associated with the additional coverage. If, for example, the benefit is 100% employer paid the additional coverage, if approved, would come at no additional cost.
Choosing to apply for the additional coverage
If you choose to apply, you must complete the Notice of Excess form you receive, along with the provided Evidence of Insurability or Medical Underwriting documents that you receive. Depending on the makeup of your plan you may be eligible for excess coverage for more than one benefit at the same time. If this is the case and different insurance carriers underwrite those benefits, you may need to complete more than one medical questionnaire.
Once you have completed the necessary documents, please return them as directed in the communication you received. If your plan is administered by Effortless Admin you will typically be required to return the forms to Effortless Admin.
Once the relevant insurance carriers have reviewed your medical questionnaire they will either approve you for the additional coverage or decline to provide the additional coverage to you.
If you are approved for additional coverage by the insurance carrier(s), there is nothing further that you need to do. Your new coverage level(s) will take effect when approved.
If the insurance carrier declines to approve you for additional coverage beyond the NEM, most will allow you to apply again in the future if your health changes. It is advisable to allow 6 months beyond your change in health before applying again. This can differ from insurance carrier to insurance carrier.
Choosing to decline the additional coverage
If you initially choose to decline the additional coverage, either by explicitly indicating your wish to decline or by simply ignoring the excess coverage invitation, you can still apply for that coverage at any time in the future. There is no timeframe in which you must apply and the availability of the excess coverage will not expire unless you are declined coverage by the insurance carrier.
Frequently Asked Questions
What is a Non-Evidence Maximum/Limit (NEM/NEL)?
A Non-Evidence Maximum (NEM), sometimes also referred to as a Non-Evidence Limit (NEL) is the highest amount of coverage a plan member is guaranteed to receive without having to complete a medical questionnaire to apply.
What is Excess Coverage?
Excess coverage is an amount of coverage you are eligible to apply for above your plan’s Non-Evidence Maximum (NEM). Excess coverage approvals are typically subject to the insurance carrier’s review of a medical questionnaire (typically called an Evidence of Insurability form). Approval of excess coverage is at the insurance carrier’s discretion.
How do I apply for additional coverage?
When you are eligible for additional or excess coverage you will receive information about the additional coverage available to you and a medical questionnaire (typically called an Evidence of Insurability form) that must be completed as part of the application process.
What is the maximum amount of coverage that I can apply for?
Most plans specify the maximum amount of coverage available to you. This information can be found in your benefits booklet. If your plan is administered by Effortless Admin, you can find this information through your plan member site.
How can I determine how much the additional coverage will cost me?
The communication you receive informing you of your eligibility for additional coverage will indicate if there is any cost associated with the additional coverage. If for example, the benefit is 100% employer paid, the additional coverage, if approved, would come at no additional cost.
What if I decline to apply now but change my mind later?
As long as you have not been declined coverage by the insurance carrier, if you have excess coverage available to you that you have not yet applied for, you can apply for that coverage at any time. There is no timeframe in which you must apply and the availability of the excess coverage will not expire.
What if I am declined for additional coverage?
If the insurance carrier declines to approve you for additional coverage beyond the NEM you may not be eligible for additional coverage in the future. This can differ from insurance carrier to insurance carrier. If you were declined in the past and are eligible to be considered for excess coverage again in the future you will receive an invitation to apply again.