YOU ASK:

How much does disability insurance pay?

WE ANSWER:

In a nutshell, disability insurance (whether private or state-sponsored) will not pay more than what you already earn. Usually, the insurance will cover from 55% to 80% of the beneficiary's income prior to the disablement or impairment, subject to specified maximum limits for the benefit amounts.

For instance, policies may say, "payment of disability benefits in an amount corresponding to x% of the insured's monthly salary or earnings up to a maximum of $3,000 a month".

In some cases, private insurance plans also provide a specified amount that will be payable in the event of disability, instead of a percentage of one's income. Thus, this kind of policy may say "payment of disability benefits in the amount of $2,000 if the insured becomes disabled".

For private disability insurance plans, it really depends on the conditions specified in the policy - some disability payments remain constant throughout the payment period while other insurance plans are designed to have increasing payments to account for inflation. Again, this will depend on the kind of plan you get and what premiums you pay.

For Social Security, your disability benefits may be reduced based on your income. The computation will be like this:

  • The first $85 is taken out of your income
  • Social Security will pay 50 cents for every dollar in excess of the first $85

What is important to note is that despite the number of disability insurance plans you have, the payments will be limited so that you are not able to get the full income that you have received before your disability. The rationale behind this is that if disability insurance payments are lower, it will give the beneficiary an incentive to strive to get back on his feet and back to work in order for him to regain the level of income he used to enjoy before.

What is important is for you to understand the following definitions:

Basic Monthly Earnings. This is usually defined as your gross monthly income. Other income such as commissions and bonuses may be taken into consideration, but the main basis would be one's monthly income during the time of disablement.

Offsets. These are other disability benefits that you receive from other sources. Thus, if you receive disability payments from Social Security and you have a disability insurance plan, that disability insurance may deduct what you receive from Social Security from the payments you stand to receive from them. For instance, the plan specifies that you get 70% of your salary, which is $2,000 a month. Then your plan should pay $1,400. But if you are receiving $1,000 from Social Security, the insurance company will only pay $400, since the $1,000 is already paid by Social Security.

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