Pre-Disability Earnings

Pre-Disability Earnings is the amount of qualifying income that a disability insurance policyholder was earning before an injury. Pre-disability earnings are used to calculate how much disability income a policyholder will qualify for in the case of an injury. The injury may prevent the policyholder from working at all, or may prevent the policyholder from working full time.

Individuals buy disability income insurance in order to receive some level of income in the case of an injury. Without disability income insurance a worker may rely on Social Security Disability Income (SSDI), or may not have any source of income at all. This can be disastrous to families, especially if the person injured was the sole income earner in the family.

Pre-disability earnings set a baseline off of which the benefits provided by a disability policy are calculated. It is based off of how much the policyholder was earning on his or her last full day of active work, though some policies may use average earnings over a period of time. Pre-disability earnings do not include bonuses, commissions, overtime pay, or the employer’s contributions to a retirement plan. They do include personal contributions to a retirement plan, as well as regular salary.

The amount of disability income that a policyholder is eligible for may be set as a monthly maximum or as a percentage of pre-disability earnings. For example, a policy may indicate that the benefit is set at 75% of pre-disability earnings. This means that a policyholder who was making $80,000 a year and is no longer able to work can receive a monthly benefit of $5,000 (75% * $80,000 / 12).

Disability policies often allow an individual to also purchase a residual benefit, which allows the policyholder to receive partial benefits if he or she is able to return to work part-time. The amount of residual benefit depends on the pre-disability income, less any income that the policyholder is able to bring in through part-time work.

Disability income insurance has a variety of factors that influence the final premium. Policy premiums generally range 1.5 to 3 percent of gross income. The older the applicant, the higher the premium. The minimum age for applying is 18 and the maximum age usually is 60. Unlike for life insurance, DI female rates are higher per unit of coverage than those for male applicants. Smokers can expect to pay more, as will those in poor health.