Variable Income: How Much Does Long-Term Disability Pay?

Many people receive variable income because they’re small business owners, salespersons, freelancers, or receive performance-based commissions or bonuses. If your income is variable on a day-to-day, week-to-week, or month-to-month basis, you may be concerned about the potential impact on your disability insurance benefits.

Insurers are always looking to minimize their costs, and if you have a variable income, they may try to underestimate your income to lower your benefits. As the insurance policyholder, however, you are entitled to challenge an insurer’s attempt to wrongfully deny, undervalue, and mishandle your claim.

In this article, our disability insurance lawyers at Bryant Legal Group explain how to calculate long-term disability benefits involving variable income.

Variable Income Means Something Different for Everyone

There are many different types of variable income earners:

  • Employees who receive a base salary but also get a significant, performance-based, year-end bonus
  • Employees whose earnings are primarily through commissions or customer tips
  • Independent contractors and self-employed individuals
  • Small business owners and entrepreneurs

No matter your circumstances, your priorities are clear. If you’re unable to work due to an injury or illness, you want fair compensation.

How Much Does Long-Term Disability Pay?

Most LTD policies pay monthly benefits to disabled individuals. Typically, the insurance company will pay you a percentage of your pre-disability earnings each month. This percentage can vary, but it is often between 50% and 80% of your earnings. Most policies also have a maximum benefit, so if you earn a very high income, your monthly benefit may be less than the standard percentage set out in your plan.

To calculate your exact monthly benefit, you’ll need to read your Plan Document or Summary Plan Description (SPD). These documents outline all the terms and conditions of your policy, including the formulas the insurance company will use to calculate your benefits. (If you need help interpreting your SPD or Plan Document, consult a lawyer who can help you fully understand its terms.)

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Will the Insurance Company Consider My Bonuses and Commissions When It Calculates My Benefit Payments?

Long-term disability plans vary dramatically, so the answer to this question will depend on the precise terms of your policy. Many policies calculate your monthly benefit payment based on your monthly salary, and this calculation does not typically include supplemental income such as bonuses, commissions, tips, and other compensation. 

However, some plans are intended for those who earn a variable income.  Many salespeople, independent contractors, and self-employed individuals purchase private disability insurance coverage that more broadly defines their pre-disability earnings, even if they already have an employer-funded policy. These private plans typically account for income earned through supplemental sources such as overtime, bonuses, commissions, and tips. 

How to Choose a Private Disability Insurance Policy if You Earn Variable Income

If you have variable income, it’s important that your plan average your earnings so that your monthly income is derived based on your total annual income.  For example, some plans will calculate your benefit by averaging your earnings over the year. However, this might also be a disadvantage if you’re a freelancer and you’ve had a down year. 

An alternative is to look for an insurance plan that will average your earnings over a longer time, giving you a more accurate evaluation of your monthly income. For example, some plans will average your pre-disability earnings over two years.

When you purchase private long-term disability insurance, make sure your agent understands that your income is variable. They can help you select a plan that meets your needs.

What Should I Do if the Insurance Company Undervalues My Income?

Sometimes, even if you were proactive and purchased private disability insurance that acknowledges your income variability, you may still run into issues. First, calculating your pre-disability earnings may be complicated, and even the most honest insurance adjuster can make mistakes. Second, some insurance companies intentionally try to undervalue people’s income.

In either case, if you think your long-term disability benefit payments seem too low, you should consult a disability insurance lawyer.

At Bryant Legal Group, we help self-employed and commission-based workers understand their long-term disability policies, properly calculate their benefits, and fight back against the insurance company’s tactics.

The sooner you consult with our team, the better. Strict appeal deadlines apply to long-term disability claims. If you miss these deadlines, you may lose out on benefits. And if you work with a skilled disability lawyer from the beginning of your claim, they are more likely to catch mistakes and miscalculations early on, potentially saving you from the hassle of prolonged litigation.

Bryant Legal Group: Chicago’s Trusted Long-Term Disability Firm

Here at the Bryant Legal Group, our attorneys have decades of experience representing people in their disability insurance claims. We have a fundamentally client-oriented approach to legal advocacy. Unlike many of our competitors, we work closely with our clients at every stage of a dispute to make sure we have all the information we need. Over the years, this aggressive and transparent approach to litigation has helped us recover significant benefits and compensation for our clients.

Ready to speak to an attorney about your disability insurance claim? You can schedule an appointment by either completing our online form or calling us at (312) 667-2536.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

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