It can be confusing trying to figure out the amount of Long Term Disability Insurance benefits the insurance company should pay. Here is a brief outline of how the amount is commonly determined.
Step 1.-Figure out your base monthly income. (Take your yearly income and divide by 12. Beware however-commonly excludes overtime and bonuses.)
Step 2. Multiply by the benefit percentage listed in the Insurance Policy. Commonly 66 2/3%. (However, I have seen many other rates from 40-70%.)
Step 3. Determine if there are any offsets. Almost every policy includes language allowing the Long Term Disability Insurance Carrier to reduce its monthly payment amount by any other income you may be entitled to receive. Most commonly this includes social security disability payments (for both you and your dependents.) Other common offsets include worker’s compensation payments, pension benefits, no-fault benefits and lawsuit settlements.
A sample calculation:
Annual Salary (from W-2 tax form or form 1040)=$60,000
divided by 12 months =$5,000 /month
multiplied by 66 2/3% = $3,333.33
minus $1950 in SSD =$1383.33 monthly benefit
A final word about other income offsets. Most plans allow for an offset of benefits you may be entitled to receive which means you have to apply for all eligible benefits. For instance, if you are potentially eligible for social security disability benefits but fail to apply, the Long Term Disability insurance company is still entitled to take the offset and reduce its benefit payment. If you have any questions about your benefit calculation of the application of Other Income offset, please feel free to call us for a free consultation.