Residual Disability Benefit

Posted by Brendan Flaherty

Jun 3, 2016 1:03:18 PM

Assume a monthly pre-disability income of $4,750 and an insurance policy providing $3,500. If during the period of residual disability the earnings are $2,250 per month, the policy will pay $921 during the period of residual disability. The calculation is as follows:

1) The loss ratio is $1,250 / $4,750 or 26.32%. The $1,250 in the numerator is calculated as $4,750 of income before disability – $2,250 of income after disability.

2) The $921 residual payout is calculated as the insurance policy amount of $3,500 x 26.32% loss ratio.

Topics: Course 2: Insurance Planning