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. Managing Wealth

    Tips for Insuring Your Salary

    Those with high incomes really can’t afford to be without disability insurance. Here's why.
  2. 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.
  3. Insurance

    The Disability Insurance Policy: Now In English

    Learn to translate this complicated policy so you can rest assured you're covered.
  4. Financial Advisor

    Advising FAs: Explaining Disability Insurance to a Client

    Disability is a very critical type of insurance that most individuals should consider carrying. When it comes to your personal finances, long-term disability can have a devastating effect if ...
  5. 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.
  6. 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 ...
  7. Insurance

    5 Things You Need to Know About Disability Insurance

    It's important to understand the true value of your ability to earn income, and to make sure it's protected.
  8. 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.
  9. 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.
Frequently Asked Questions
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The concept of CAGR is relatively straightforward and requires only three primary inputs: an investments beginning value, ...
  2. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors with insight into how efficiently a company (or more specifically, ...
  3. What is the difference between Communism and Socialism?

    Learn how some countries are incorporating socialist methods into capitalism.
  4. What's the difference between a stop and a limit order?

    A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. With ...
Trading Center