How Do I Calculate Disability Benefits?

August 18, 2020 | J. Price McNamara
How Do I Calculate Disability Benefits?

Long-term disability benefits can help relieve some of the financial burdens that you may face if you are unable to work. With long-term disability (LTD) benefits, you will only receive a percentage of your previous wages, which leaves some people worrying about whether or not they will be able to continue to pay for certain financial obligations. In order to help you come up with a reasonable monthly budget, here is everything that you need to know about how to calculate disability benefits.

What is Long Term Disability?

Long term disability benefits are issued by an insurance company that either you or your employer has purchased a policy from. It is different from Social Security Disability which is federally governed by the Social Security Administration. If it is determined that you will be unable to work for an extended period of time -- usually longer than six months -- you can apply to receive long term disability income from your insurance provider. If you are approved to receive LTD, you will receive a certain amount of money each month that is designed to replace the income that you were previously receiving from your employer. LTD benefits are usually given to those who suffer from an injury that prohibits them from working. However, if the injury or accident happened while you were working, you need to file for worker's compensation insurance instead of LTD. How much money you will receive from your LTD benefits can vary from case to case. However, based on what your policy states, you will usually receive between 40% and 80% of pre-disability wages. The actual amount of money that you will receive each month will be determined by several factors including your cost of living and whether you are receiving other benefits relating to your disability.

How Do I Calculate My Disability Benefits?

There are a few things that your insurance provider will look at when figuring out how much money you will receive each month. Your policy will usually state the maximum amount that the insurance company is willing to pay, which can range between $4,000 and $25,000 a month. Here are a few questions that the insurance company will want to be answered before they decide how much money you will receive each month.

1. What Was Your Pre-Disability Income?

Your pre-disability wage is the amount of money that you were making each month at your job prior to your disability. The insurance company will pay a certain percentage of your pre-disability income. Review your policy to find what percentage the insurance company is willing to pay. Also, it is a good idea to talk to your employer or the HR department to ensure that they have properly calculated our pre-employment wages.

2. Does the Policy Include a Cost-of-Living Adjustment?

A cost-of-living adjustment (COLA) is an optional add-on that some policies will have. If your policy includes a COLA, that means that your payment will increase based on economic inflation. This will help ensure that you are still able to pay your rent and other bills even when your cost of living increases. In most cases, the COLA will allow your monthly benefits to increase between 1% and 3% each year.

3. Are You Receiving Other Benefits?

If you are receiving other benefits, such as Social Security disability, retirement benefits, third-party settlements, or worker's compensation, then the LTD insurance provider will take those benefits into account to offset the amount. In many cases, the insurance company will require that you apply for Social Security benefits before they approve your LTD to reduce the amount of money that they have to pay. Here is an example of offsetting: If you are supposed to receive $2,000 a month in LTD benefits and you are receiving $1,000 in Social Security benefits a month, then your LTD provider will only be required to pay you $1,000 in order to ensure that you are receiving $2,000 a month. If your offset amount is more than the amount you would receive from LTD benefits, your LTD provider is not required to pay anything unless it states in your policy that they just pay you a minimum amount each month.

Can I Still Work While Receiving LTD Benefits?

Whether or not you can still work depends on what type of policy you have. If you have an "own occupation" policy, you will not be at risk of losing your benefits as long as you are not working in your pre-disability occupation. If you have received an "any occupation" plan, that means that you will not be able to work at any job without the risk of losing some, if not all, of your benefits.

Ensuring That You Are Getting the Benefits that You Deserve

Going through the process of receiving long-term disability can be confusing and overwhelming. If you want to ensure that you are able to get the benefits that you deserve, talk to an experienced ERISA lawyer as soon as possible. A qualified attorney will be able to help you calculate your disability benefits and give you advice on how to increase the amount of money you receive each month.
J. Price McNamara Author Image

J. Price McNamara


Losing my own brother, then my father and sister after long, disabling illnesses just a few months apart drove a career change for me. Before that experience, I never truly understood the place you’re in. I never understood the dramatic impact that receiving (or not receiving) the disability and life insurance benefits you paid for and counted on can have on your life especially when you need to focus on family and healing. What I experienced with my own family now drives the way I view my clients and my work, and I will never forget it!

Author's Bio