ANDOVER, MA--(Marketwire - October 28, 2010) - Make sure your disability insurance policy will replace as much of your income as possible, even if you're just partially disabled, Jim Edholm of Business Benefits Insurance writes in Massachusetts Lawyers Weekly.
If your partial disability lasts less than a year, you'll probably be well covered.
"Most insurers will add enough disability benefit to your regular pay so that you end up receiving 100 percent or even 105 percent of what your pay was before you were disabled," Edholm points out.
But after that initial period of one or sometimes two years, your disability benefit will be proportionate to your salary loss as a percentage. If you lose 30 percent of your income, you get 30 percent of the disability benefit you would have received for total disability.
Since total disability benefits are often capped at 60 percent, someone who makes $120,000 would get $72,000 if totally disabled. If he becomes partially disabled and loses 50 percent of his income, he gets half of $72,000, or $36,000. That, plus half his salary, $60,000, equals $96,000, or 80 percent of what he was making.
"But the highest-paid professionals run into the maximum monthly disability benefit, and $10,000 is a typical figure," Edholm cautions.
If a lawyer, doctor or executive making $300,000 returns to work at 50 percent of earnings ($150,000), he may get half of the maximum benefit of $10,000 a month: $5,000 a month, $60,000 per year. That plus his $150,000 earnings brings him to $210,000 -- 70 percent of pre-disability income.
That's a lower percentage benefit than the $120,000 employee received.
At least one carrier has creatively solved this by focusing not on the percentage loss of income but on the amount of lost income. This carrier pays the lesser of the maximum benefit, or 70 percent of lost income.
So the $300,000 employee earning half of his income would then receive 70 percent of that amount, or $105,000, or $45,000 more than with traditional plans. Add in the remaining $150,000 of income, and his total is $255,000, or 85 percent.
Not only does this formula work for the highly paid, upper-income wage earner, it also is generally better for middle-income workers, too.
Business Benefits Insurance (www.bbibenefits.com) is an employee benefits planning firm in Andover, Mass. Edholm's benefits blog can be read at http://bbibenefits.wordpress.com. More information is available by contacting Edholm at JimEd@bbibenefits.com or calling 978-474-4730.
Contact Information:
Contact:
Henry Stimpson
Stimpson Communications
508-647-0705
Henry@StimpsonCommunications.com
Jim Edholm
Business Benefits Insurance
978-474-4730
jedholm@bbibenefits.com