How Pre-Disability Earnings Affect Your Long-Term Disability Benefits
If a disability prevents you from working, long-term disability (LTD) benefits can replace a portion of your income. But how do insurance companies determine exactly how much you’ll receive?
Under most employer-provided LTD policies, the answer comes down to your pre-disability earnings, and understanding how your policy defines and calculates this figure is critical. If your employer or insurer makes errors in this calculation, you may receive far less than what you may be eligible for under your policy.
In this article, CCK Law will answer the following questions:
- What are pre-disability earnings?
- How are pre-disability earnings used to calculate your LTD benefit?
- What common issues can affect the amount you receive each month?
- What steps can you take if you believe your benefit has been miscalculated?
What Are Pre-Disability Earnings?
Pre-disability earnings are generally the income you were earning from your employer immediately before you became disabled and unable to work. This amount serves as the foundation for calculating your monthly LTD benefit under most employer-provided LTD policies.
Watch CCK Law Partner Leah Small break down what long-term disability claimants need to know about how pre-disability earnings determine LTD benefits:
Employer-provided LTD policies typically provide that the insurer will pay a gross monthly benefit equal to a set percentage of your pre-disability earnings. For example, if your policy provides for a 60 percent benefit and your pre-disability earnings were $5,000 per month, then your gross benefit would be $3,000 per month.
However, the way pre-disability earnings are defined can vary significantly from policy to policy. Some policies use only your base salary, while others may include bonuses, commissions, overtime pay, or other forms of compensation.
The definition may also specify the relevant time period. Some policies use your rate of pay at the time you stopped working, while others average your earnings over a longer period, such as the previous 12 months.
It is also important to note that pre-disability earnings are used to calculate your initial gross benefit, but the actual amount you receive each month may be lower. Factors such as caps on the maximum benefit amount or offsets for other income sources, like Social Security disability benefits, can reduce your monthly payment.
What Issues Can Affect the Calculation of Pre-Disability Earnings?
Errors in calculating pre-disability earnings can result in a benefit amount that is lower than it should be. Common issues include:
- Incorrectly excluding income: The insurance company may exclude certain forms of compensation, such as bonuses or commissions, that your policy requires them to include.
- Using the wrong look-back period: The insurer may average your income over the wrong timeframe, resulting in an inaccurate baseline.
- Employer errors: Your employer may provide outdated or incorrect salary information to the insurance company, which then uses that figure to calculate your benefit.
Any one of these errors can have a significant impact on your monthly benefit, and, over the life of a claim, the financial consequences can be substantial.
What Steps Can You Take If You Believe There Is an Error?
If you suspect that your pre-disability earnings have been calculated incorrectly, there are several proactive steps you can take.
- Read your policy carefully. Understanding exactly how your policy defines pre-disability earnings, including what forms of income are included and what time period applies is essential before you can identify whether an error has occurred.
- Gather all relevant income documentation. Pay stubs, W-2s, tax returns, and any records of bonuses or additional compensation can all help verify the correct figure.
- Compare your documentation against the insurance company’s calculation and the terms of your LTD policy. If the numbers do not align, you have grounds to challenge the determination.
- If you believe the insurance company used an incorrect pre-disability earnings amount, then you should appeal that determination. Catching and correcting these errors early can make a meaningful difference in the total benefits you receive.
Watch CCK Law Partners Mason Waring and Leah Small explain how long-term disability administrative appeals work:
Frequently Asked Questions
What is the difference between gross and net LTD benefits?
Your gross benefit is the amount calculated directly from your pre-disability earnings and your policy’s benefit percentage. However, if this calculation results in an amount that is higher than your policy’s maximum benefit, then your gross benefit will instead be that maximum benefit amount. Your net benefit is what you actually receive after offsets, such as Social Security disability payments or other income, are subtracted. Reviewing your policy carefully will clarify what offsets apply to your claim.
Can my LTD benefit change over time?
Yes. While pre-disability earnings help establish the initial benefit amount, other factors can also affect your monthly payments over the life of a claim. These factors can include cost-of-living adjustments, changes in offset income, or reaching a policy’s maximum benefit period.
What if my income varied significantly before I became disabled?
If your income fluctuated (e.g., due to variable commissions or irregular bonuses), then the look-back period used to calculate your pre-disability earnings becomes especially important. Depending on how your policy defines this period, different averaging methods could produce very different benefit amounts.
Conclusion
Claimants should be proactive in reviewing their policy and gathering detailed income documentation to ensure the insurance company’s calculation is accurate.
As CCK Law Partner Leah Small explains, “Understanding how pre-disability earnings are defined and used is absolutely critical as it directly determines the value of your long-term disability claim under most employer-provided policies.”
If you need help with your long-term disability claim or appeal, CCK Law may be able to assist you. Since 1999, we have been helping individuals get long-term disability benefits — though past results do not guarantee future outcomes. Contact us today for a free case evaluation, by phone at (800) 544-9144 or through the online form on our website.
