What Are Pre-Disability Earnings?
Pre-disability earnings refer to the amount of a disability insurance policyholder’s income that was in effect before a disability began. They determine the amount of disability income that the policyholder will qualify for if he or she sustains an injury. The injury may prevent him or her from working completely or working full time.
How Do Pre-Disability Earnings Work?
Disability income insurance is intended for helping people replace a portion of their income if they become injured for an extended period. The plans pay policyholders a percentage of their pre-disability earnings. The percentage range is mostly 60% to 67%.
Disability insurance policies use different timeframes to calculate pre-disability earnings. Some take the earnings to be the amount of income that a policyholder was earning on the last full day that he or she worked. Others use the average amount earned over a specified period, such as the previous 12 or 24 months. Policies normally exclude commissions, bonuses and employers’ contributions to retirement plans from the calculation of pre-disability earnings.
Long-Term Disability Benefits
Suppose the pre-disability earnings of a claimant are $75,000 annually and the disability insurance policy has a rate of 66.66%. The claimant will get a yearly benefit of $50,000 or $4,166.67 every month when he or she is injured and can no longer work. A person with pre-disability earnings of $60,000 and a benefit percentage of 60% will get a long-term disability benefit of $3,000 per month.
Disability policies usually allow people to receive partial or residual benefits if they start doing part-time work. The benefits are determined by the pre-disability earnings less the new income brought in through the part-time work.
Factors Affecting Disability Insurance Premiums
Some of the factors that affect the cost of disability insurance include:
- Age: The minimum age of an applicant is 18 years. The maximum age is typically 60. The older an applicant is, the higher the final premium.
- Gender: The rates for female applicants per unit coverage are higher than the rates for men.
- Health: Smokers can pay as much as 25% more than non-smokers for the same protection. People in poor health also pay more.
When claiming disability insurance benefits, people should ask their claims handler for the calculations of their earnings. They should ensure that their pre-disability earnings have been calculated correctly. In case of any problem, they can seek advice from a social security disability attorney.