CFP

Disability Insurance - Benefit Amounts

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.



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