If I Become Disabled, How Much Will I Get?
By: Jonathan M. Bernstein GBDS, VBS, BAM
This is the question most people ask when signing up for Short or Long Term Disability coverages in the workplace. Even if the coverage is not voluntary, it is important to know that you or your employees’ income is being covered adequately.
One of the main determinates of the benefit amount is the definition of earnings within the Short or Long Term disability contracts. In order to understand the definition of earnings, we must define the “Monthly Earnings”. Monthly Earnings means your average gross monthly income. This can be figured in multiple ways which is where the confusion starts and adequate coverage is lost.
If the definition of earnings stated that your monthly earnings is only your salary or hourly wage, then this is what your disability coverage is based on. Here is an example:
Client A – Definition of Earnings noted Salary only.
($40,000 Salary X 60% Benefit) = $24,000/12 months in a year = $2,000 Monthly Benefit
In the following example the definition of earnings states that salary, commission, and bonuses are to be included in the Monthly Earnings.
Client B – Definition of Earnings includes Salary plus Bonus and Commissions.
($40,000 Salary + $8,000 in Bonus and Commission X 60% Benefit) = $28,800/12 = $2,400 Monthly Benefit
The employee in Client B example will received 20% more in their monthly Long Term Disability benefit. This can be significant when this is your only income source.
Each carrier in the marketplace is different and there are multiple ways to define the monthly earnings. The ability to update your definition of earnings is not complicated. It is important to understand the intricacies of your contract and how the benefits would be paid to you and your employees.
Please let us know when we can review your contract provisions with you and your team.
Jonathan Bernstein – GBDS, VBS, BAM
Sr. Account Manager