How Much Is Long-Term Disability per Month?
Understand how your long-term disability monthly benefit is determined, what factors influence the final amount, and how payments are received.
Long-term disability (LTD) insurance serves as a financial safeguard, designed to replace a portion of your income if a prolonged illness or injury prevents you from working. The monthly benefit amount varies considerably based on policy and individual circumstances. Understanding how these amounts are calculated and what influences them is essential for anyone relying on this coverage. This article explains how long-term disability benefits are determined, from initial calculations to how other income sources and taxes can adjust the final amount.
Calculating Your Monthly Benefit
Long-term disability policies typically calculate your gross monthly benefit as a percentage of your pre-disability earnings. This percentage commonly ranges from 50% to 80% of your income, with 60% being a frequent figure. For instance, a policy might specify a payout of 60% of your gross monthly salary before disability.
The definition of “income” can vary between policies. While it usually includes base salary, some policies may also factor in commissions, bonuses, or overtime, often based on an average over a specific period. Reviewing your policy’s “covered earnings” definition is important to understand what income components are included.
Policies also include maximum monthly benefit limits, capping the total amount you can receive. These maximums can range widely, from around $4,000 to $25,000 per month, with many plans setting caps at $10,000 or $20,000. For high-income earners, these caps mean the actual benefit might be less than the stated percentage of their full income.
Some policies may include a minimum monthly benefit provision. This ensures a baseline payment, even if the calculated percentage of your pre-disability income is low or if offsets reduce the gross amount. Minimums can be modest, often around $50 or $100 per month, or a percentage like 10% of the gross monthly benefit.
The benefit calculation structure can differ between employer-provided group policies and individual policies. Group plans often have standardized terms, while individual policies may offer more flexibility. Both types of policies include an “elimination period” or “waiting period,” which is the duration you must be disabled before benefits begin. This period commonly ranges from 90 to 180 days.
How Other Income Affects Your Benefit
Various other income sources can reduce your gross monthly benefit through “offsets.” These provisions prevent individuals from receiving more in total benefits than their pre-disability income, ensuring the benefit serves as income replacement. Policies define which external benefits are considered deductible.
A common offset is Social Security Disability Insurance (SSDI). Most long-term disability policies require claimants to apply for SSDI. Once approved, the LTD benefit is almost always reduced by the amount received from SSDI. This typically results in a dollar-for-dollar reduction.
Workers’ compensation benefits also commonly reduce long-term disability payments if the disability is work-related. The LTD policy will typically subtract the workers’ compensation amount from the gross LTD benefit. This prevents overpayment when multiple sources cover the same injury or illness.
Other income sources can also lead to offsets. These may include benefits from other private or public disability plans, or retirement benefits like pensions or 401(k) distributions if taken due to disability. Policies may also contain provisions for “earned income” if you work part-time while receiving benefits, which can proportionally reduce the monthly LTD payment.
The taxability of long-term disability benefits further influences the net monthly amount received. If your employer paid the premiums for your LTD policy with pre-tax dollars, the benefits are generally considered taxable income. If you paid the premiums with after-tax dollars, the benefits are usually tax-free.
Receiving Your Monthly Payments
Long-term disability benefits are typically disbursed monthly, providing a consistent income stream to individuals unable to work. Payments are commonly issued at the beginning or end of each month, covering the preceding period of disability. Most insurance carriers offer direct deposit into a bank account.
The duration for which these monthly payments continue depends on your policy’s specific terms. Benefits generally continue for the duration of the disability, or until a specified maximum benefit period is reached. Common maximum benefit periods can extend to age 65, Social Security’s normal retirement age, or for a set number of years, such as two, five, or ten years.
Many policies also include specific limitations for certain conditions, such as mental or nervous disorders, often capping benefits at 24 months. Beneficiaries are typically required to provide ongoing proof of disability to the insurer. This involves submitting regular medical updates, attending independent medical examinations, and reporting any changes in income or other benefits received.