The calculation of Long Term Disability benefits involves a combination of factors that can vary depending on the specific terms of the insurance policy and the individual’s circumstances. It is helpful to have a Winter Springs Long Term Disability lawyer assist with these calculations.
In general, however, here is an overview of how Long Term Disability benefits are commonly calculated.
Percentage of Pre-Disability Earnings
Many Long Term Disability policies provide benefits as a percentage of the individual’s “pre-disability earnings.” This percentage is typically specified in the insurance policy. Typical percentages range from 50% to 70% of the individual’s pre-disability income. After determining the pre-disability earnings (discussed below) and applying the benefit percentage, you have determined the “Gross Monthly Benefit.”
Maximum Monthly Benefit
Policies often include a maximum monthly benefit amount – the highest amount the individual can receive in Long Term Disability benefits. This maximum prevents excessive benefits from surpassing the individual’s pre-disability income.
Pre-Disability Earnings
The definitions of “pre-disability earnings” (also sometimes called “Basic Monthly Earnings”) vary from policy to policy. Some policies use the individual’s base salary, while others may include additional compensation such as bonuses or overtime. It is essential to carefully review the policy to understand which income components are considered in the benefit calculation.
Offset Provisions
Some Long Term Disability policies may include offset provisions, which reduce the disability benefit amount based on other sources of income the individual receives. Common offsets include Social Security Disability Insurance (SSDI) benefits, workers’ compensation, and certain retirement benefits. These amounts are subtracted from the “Gross Monthly Benefit,” resulting in the “Net Monthly Benefit,” which the insurance company will pay.
Minimum Monthly Benefits
If the offsets reduce the Gross Monthly Benefit to a point at or near zero ($0.00) dollars, a provision generally provides for payment of a “Monthly Minimum Benefit.” It is usually something like 10% of the “Gross Monthly Benefit” or a flat amount of $100.00 (or even less).
Duration of Benefits
The duration for which Long Term Disability benefits are payable is outlined in the policy. Some policies provide benefits until the individual reaches a specific age (e.g., age 65) or the “Social Security Normal Retirement Age,” which varies depending on the birth year. For those born on or after the calendar year 1960, the SSNRA is 67.
Typically, there are provisions in the policies providing for a limited benefit duration for specific medical conditions. These must be carefully considered in determining how best to present the application for benefits.
Cost-of-Living Adjustments (COLA)
Some policies include provisions for cost-of-living adjustments, allowing disability benefits to be adjusted periodically to account for inflation. This helps ensure that the purchasing power of the benefits remains relatively stable over time.
Elimination Period
The elimination period, also known as the waiting period, is the initial period of disability during which the individual is not eligible for benefits. Once this period expires, benefits become payable. Usually, for Short Term Disability policies, the elimination is either seven or 14 days. For Long Term Disability policies, the elimination period usually coincides with the period that Short Term Disability covers.
Own Occupation vs. Any Occupation
The definition of disability in the policy is crucial. Some policies define disability based on the individual’s inability to perform their “own occupation” at the time of disability. In contrast, others may transition to an “any occupation” definition after a certain period, usually 24 months, although, again, this period varies from policy to policy.
Individuals considering Long Term Disability benefits should carefully review their policy documents, paying close attention to these factors and seeking clarification from their insurance provider if needed. Additionally, consulting with legal or financial professionals experienced in disability claims can provide valuable assistance in understanding the policy terms and navigating the benefit calculation process.
Herbert M. Hill, P.A. Can Help
If you have any questions about your Short Term Disability or Long Term Disability claim, please contact our firm. If you would like, after discussing your case, we can set up a conference. In most circumstances, that conference would be free of charge, but you would not be obligated to hire me, nor would you feel any pressure from me to do so.
Herbert M. Hill, P.A. is a law firm located in Orlando, Florida, with a practice extending throughout Florida. While most cases handled are for disability insurance benefits, areas of practice include employee benefit claims. The firm handles any claims arising under the Employee Retirement Income Security Act (“ERISA”) for disability benefits, medical benefits, retirement benefits of any sort, including pension, 401k, termination agreements, or the like, as well as claims arising under private disability policies.
