Typically, the benefits under a disability income policy are paid in the form of monthly income payments. Insurers will normally place a ceiling on the on the amount of disability insurance income protection that they will issue on any one single applicant- usually determined by the applicant's current earnings. Prior to disability income payments, insurers will require the disabled individual to be under the care of a physician and provide proof of an insured's partial or total disability. There are two common methods of determining the benefit amount available under a personal policy, they are the percent-of-earnings approach and the flat-amount method.

Percent-of-Earnings Approach
Just like the title states, this method calculates the benefit payable by using a percentage of the insured's earnings prior to the disability. Most insurance companies will commonly issue a policy with 50 to 70 percent monthly income replacement benefit. For example, an individual earning $5,000 per month could typically expect to obtain a disability policy that would replace 60% of their current monthly earnings or $3,000 per month in benefits. Companies that use this method will also take into account any other disability payments that the insured might receive while disabled and deduct that amount from their benefit.

Flat-Amount Method
Under this method, the insured and the insurance company agree on a flat monthly benefit amount which is specified in the policy to be paid during the total disability period of the insured. The highlight of this option is that it will not be affected by any other income benefits that the insured may receive. With very few exceptions, the benefit received by the insured will always be less than their current monthly earnings. Insurance companies believe that this is necessary in order to provide some type of motivation for the disabled individual to return to employment and discontinue benefits.

Provisions of Disability Income Insurance

Related Articles
  1. Insurance

    Protecting Your Income With Disability Insurance

    For a high-earning professional, income protection is essential. Here's what to look for in a disability insurance policy.
  2. Financial Advisor

    How to Help Clients Who Have Become Disabled

    Disability can strike a client any time. Advisors should make sure clients are adequately insured against this risk and know what benefits are available.
  3. Insurance

    Choosing The Best Disability Insurance

    Social Security benefits can be hard to collect. Find out why you need disability insurance to protect your income, and learn how to choose the right policy for you.
  4. Managing Wealth

    Top 6 Features Of A Great Disability Policy

    Many people consider buying life insurance, but few think to prepare themselves from long-term illness or disability. Find out how to shop for disability insurance and protect yourself from financial ...
  5. Financial Advisor

    Disability and Business Overhead Coverage for the Self-Employed

    What every small business owner or professional needs to know about individual and business overhead disability income insurance plans.
  6. Insurance

    Group and Individual Disability Insurance: What You Need to Know

    What you need to know about group and individual disability income coverage.
  7. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
  8. Financial Advisor

    How to Manage SS Disability & Retirement Benefits

    Advisors with clients who receive disability benefits can carve out a profitable niche by helping them integrate this income into a financial plan.
  9. Financial Advisor

    Top 3 Financial Steps to Take on Disability

    Going on disability can be a stressful time financially. Here are 3 steps to take on disability to help protect against significant financial blowback.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center