March 2021

Last year has left many of us taking a good hard look at our finances. Never before have we seen so many Canadians suddenly working from home, or unable to work and receiving income replacement benefits. 

This month, we want to chat about salary-based benefits. We’re going to outline the difference between the maximum benefit an employee can be covered for, what they may actually be covered for, and how employees can maximize their coverage. 

So, what is a salary based benefit?

A salary based benefit is simply a benefit where the amount of coverage an employee has is equal to a calculation based on their salary amount.

The common calculations that are used vary by benefit. We’ve included some examples below.  

Which benefits can be salary based?

• Life Insurance - e.g. 2x annual salary
• Accidental Death & Dismemberment - e.g. 2x annual salary
• Short-Term Disability / Weekly Indemnity - e.g. 70% of weekly earnings
• Long-Term Disability - e.g. 66.67% of monthly earnings
• Critical Illness - e.g. 1x annual salary
  

Seems straightforward enough. What do I need to know?

Salary based benefits will most often have both an overall maximum and a non-evidence maximum (N.E.M.)

Overall Maximum

‍The maximum amount of coverage that an employee may be covered for. 

If the life insurance benefit is equal to 1x annual salary and there is an overall maximum of $100,000, even if a plan member has a salary above $100,000, they will be covered at the overall maximum amount of $100,000. 

Non-Evidence Maximum

‍The maximum amount of coverage an employee may be covered for without providing evidence of insurability. 

As above, if the life insurance benefit is equal to 1x annual salary, the maximum is $100,000, and the N.E.M. is $50,000, a plan member earning above $100,000 will be covered at the $50,000 N.E.M., until they provide evidence of insurability. 

The size of the N.E.M. for a benefit on any given plan will vary by insurer, group size, average salaries, and the overall maximum amounts. Larger groups, higher salaries, and higher overall maximums typically allow groups to obtain higher N.E.M.’s.  

How do plan members provide evidence of insurability?

Each insurer will have an Evidence of Insurability (EOI) form that is completed by the plan member and submitted to the insurer for approval. Note that based on the responses, additional info may be requested by the medical underwriters.

If the application is approved, the plan member will then be covered at their full eligible amount. Keep in mind, if the calculation of the benefit with their salary is above the overall maximum, they will be covered at the overall maximum amount. 

If the application is medically declined, the plan member still has coverage equal to the N.E.M. 

Do plan members have to apply for the full maximum? 

By no means is applying for the full maximum mandatory. If a plan member does not apply, they will simply be covered at the amount equal to the calculation of their salary up to the N.E.M. The important thing is that plan members are aware of how much coverage they actually have vs. how much they could obtain. Beyond that, each individual can decide based on their own situation and needs. 

Worth considering…

N.E.M’s are effective because it allows all employees to have a guaranteed amount of coverage without medical underwriting while still ensuring a competitive group rate. This is especially of concern for LTD (Long Term Disability) being commonly an employee paid premium (more on that in an upcoming Beyond Benefits update). 

As employers make compensation updates, it is vital that both the plan administrator and the plan member know where their salary update leaves them in regard to their eligible benefits maximums. 

The Humi Benefits module always presents the N.E.M. and overall maximum for salary based benefits to employees. If you would like to obtain a report on employees who may be eligible for excess coverage or the forms for plan members to apply, reach out to us at support@humi.ca for assistance.