This is a question our disability lawyers are frequently asked by new clients. The amount of your benefit depends on the terms of your policy. Long term disability policies vary. To learn what yours pays, you will need to refer to the policy or your summary plan description.
Several provisions in your policy could affect the amount of your benefit.
Your Base Monthly LTD Benefit
Your long term disability benefit will not replace your entire salary. Most policies provide that your LTD benefit is a percentage of your gross monthly salary. Typical percentages range from 50% to 66.67%. Employer group plans usually pay 60% of your salary up to a monthly maximum. Individual policies often have more generous benefits. Some policies specify a dollar figure that is not connected to your salary.
Your gross monthly salary is what you are making at the time you apply for benefits. Therefore, it can be a mistake to cut your hours or take an easier, lower paid position to compensate for your disability. You could inadvertently reduce the benefit to which you would otherwise be entitled. Reducing your hours or quitting your job before you apply for benefits could even terminate your coverage if your policy is employer provided. The smartest course is to consult with a disability lawyer before making any changes to your employment situation. Our New York Long term disability insurance lawyers will help you devise an exit plan from your current job that will not jeopardize your right to benefits.
Reduction (Offset) for Other Benefits
Most LTD policies contain offset provisions reducing your benefit by the amount of certain other benefits you receive. For example, your policy probably requires you to apply for Social Security disability benefits. If you are approved for Social Security disability, your LTD benefit will be reduced by the amount of your Social Security benefit. Similar offsets may apply to other benefits such as workers’ compensation, retirement benefits, and personal injury settlements.
Reduction (Offset) for Earned Income
If you return to work in a different occupation, your benefits could be reduced or even eliminated by your earned income. This is true if your policy defines “disabled” as the inability to do any occupation for which you are reasonably suited (an “any occupation” policy). However, if your policy defines “disabled” as the inability to do your own occupation (an “own occupation” policy), you should be able to work at another occupation without a reduction in benefits.
Most employer provided policies are either “own occupation” policies or hybrid policies that begin as “own occupation” policies and after several years switch to “any occupation” policies. “Own occupation” policies are more likely to be individual policies purchased directly by the insured person. These policies are often purchased by highly skilled and highly paid professionals, such as surgeons for example.
Cost of Living Adjustment (COLA)
Your policy may contain a cost of living adjustment provision or rider that could increase your benefit by a few percent each year. The amount of the adjustment is usually linked to an index that measures inflation, like the Consumer Price Index. A typical COLA is 3%.
Income Tax on Your Benefits
As a general rule, your disability benefits are subject to income tax if the premiums were paid with pre-tax dollars, as is generally true for employer-provided plans. If you paid the premiums with after tax dollars (generally the case with individual policies), your benefits are not taxable. If your premiums were paid in part with before tax dollars and in part with after tax dollars (as may be the case with some employer-provided plans), a portion of your benefits will be taxable.
How Long Benefits Continue
Most plans provide that your benefits continue so long as you remain disabled until you reach a specific age, typically 65 to 70. However, an individual plan could provide lifetime benefits. Instead, some plans provide benefits for a fixed number of years, 5 or 10, for example. If your disability is from a mental condition, your policy probably limits your benefits to 12 or 24 months.