Although we write about the importance of ensuring that your benefits provider has up-to-date salary information for all covered employees, it is usually as a part of a more comprehensive administrative checklist. This article explores in more detail the importance of this administrative discipline.
Recently, an employee of a medium sized client passed away after a long illness and time away from work on disability leave. Unfortunately, her salary on record with the insurer had not been updated in years and, while on disability leave, did not receive the benefit that would have been due nor did her family receive the full death benefit for which her income made her eligible. The employer, a non-profit association, topped up the insurance benefit by about $20,000 all together. A situation that was completely avoidable
Some benefits, such as life and disability benefits, are salary or income based. Premiums and the volume of insurance coverage for each employee on your plan may be determined that way. Though life insurance can be flat amounts, most are a function of earnings. Long and Short Term disability benefits are almost exclusively income based. Payout at time of claim is always based on the most recent amount that has been reported to the insurer and not necessarily the maximum available to the employee.
Non-Evidence Maximums (NEM)
A common basic life plan design is a multiple of salary, for example one- or two-times salary. Plans, further, have maximums, such as $250,000, more or less. Depending upon the size of the employer, there is usually what is called a Non-Evidence Maximum (NEM) or the maximum the insurer will pay out without the employee providing evidence of good health at some point, usually sign-up or when a salary increase is given. The same goes for disability benefits, which pay a multiple of a monthly (or weekly) salary. Too often, employees are not aware that they need to go through the health evidence (HE) process or are concerned that they won’t pass. It is important for the employer to keep employees informed and ensure employees who do qualify for more than the NEM amount, an opportunity to be approved in a timely manner.
When employee salaries are increased, individually or en-masse, the insurer needs to know as close to the effective date(s) as possible. Insurers or Third-Party Administrators, such as ASSOCIUM Benefits, have no way of knowing if changes have not been reported. As a result, very few exceptions are made at time of claim.
The responsibility lies with the plan administrator. They need to keep salary information up-to-date, inform new employees if they are eligible for coverage in excess of the NEM as well as existing employees for whom a salary increase can make them eligible. This is not just a good thing to do but it might avoid a situation where the employer may be eligible for the unreported balance in case of a disability or life claim. The liability lies with the employer.
Please contact ASSOCIUM if you require a better understanding of how to ensure all employees have full coverage as they qualify or require health evidence forms to have at the ready.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits Advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.