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'Salary replacement percentage' in disability plans

Wednesday, February 10, 2010

Question:

Can anyone let me know what's the significance of salary replacement percentage field in disability plans?If employee is to be paid a percentage of salary during disability period, will this field play any role or how can it be achieved in NA payroll?

Answer:





Premiums are based on employee salary or covered salary, whichever is lower.Covered Salary = Maximum Monthly Benefit ÷ Salary Replacement Percentage.

So if a vendor like Liberty Mutual for example has a plan that provides a salary replacement value up to 50% of your annual base compensation, with a monthly maximum of $7,500.00 , you will setup that in your LTD Plan in Base Benefits Table.

In order to calculate the premium that needs to be deducted from EE who enrolled into this plan, Rate tables must be setup for this plan.

Let's assume that, EE monthly salary is 10,000.00. The benefit amount is 50 percent of that. Because the benefit amount is less than the maximum monthly benefit (7500.00) , 50 percent of salary is used to calculate the premium.

if .4 is the rate per hundred, then ($10,000 ÷ 100) × .4 × 12 = $480...This will be the annual premium.

If the Monthly Salary is 20,000.00 and the max benefit amount would be $7,500.00 , because the Salary replacement percentage of 50% which is (50% of 20,000K) is exceeding the max limit of 7500.00; the calculated base for premium amount would be 15k only;

($15,000 ÷ 100) × .4 × 12 = $720...This will be the annual premium.



Hope this helps..

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