Short Term Disability Premium Calculator
Your total yearly earnings before taxes.
Percentage of salary the plan covers (typically 60%).
The maximum amount the policy will pay per week.
Cost per $10 of weekly benefit (check your policy quote).
Gross Weekly Earnings:
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Calculated Weekly Benefit:
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Benefit Volume (Units of $10):
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Monthly Premium Cost:
Annual Premium Cost:
Understanding Short Term Disability Rate Calculations
Short Term Disability (STD) insurance is a critical safety net that replaces a portion of your income if you are temporarily unable to work due to injury, illness, or childbirth. Unlike standard loans or simple purchases, calculating the premium for STD coverage involves a specific formula used by insurance underwriters.
How the Calculation Works
The cost of Short Term Disability insurance is not a flat fee. It is calculated based on how much income is being protected and the specific risk rate assigned to the policy. The formula generally follows these steps:
- Determine Weekly Earnings: Since STD benefits are paid weekly, your annual salary is divided by 52.
- Apply Benefit Percentage: Most plans cover 60% of your pre-disability earnings. This determines your potential weekly benefit.
- Check the Benefit Cap: Policies have a "Maximum Weekly Benefit." If your calculated benefit exceeds this cap, the payout is limited to the cap amount.
- Calculate Covered Volume: Insurance rates are often quoted "per $10 of weekly benefit." The benefit amount is divided by 10 to find the billable volume.
- Apply the Rate: The covered volume is multiplied by the premium rate to determine the monthly cost.
Key Terms in the Calculator
| Term | Definition |
|---|---|
| Covered Salary | The amount of your income that is eligible for insurance coverage, usually your base salary excluding bonuses. |
| Benefit Percentage | The portion of your salary the insurance will replace. The industry standard is usually 60%. |
| Maximum Cap | The absolute limit the insurance company will pay per week, regardless of your salary. Common caps range from $500 to $2,000. |
| Rate Per $10 | The unit price of the insurance. For example, a rate of $0.50 means you pay 50 cents for every $10 of weekly benefit you receive. |
Example Scenario
Let's look at a practical example to understand the math behind the Short Term Disability rate calculation:
- Annual Salary: $52,000 (which is $1,000 per week)
- Benefit Percentage: 60%
- Maximum Cap: $1,000
- Rate: $0.60 per $10 of benefit
Step 1: Calculate weekly benefit. $1,000 x 0.60 = $600.
Step 2: Check against cap. $600 is less than the $1,000 cap, so the full $600 is covered.
Step 3: Determine units of coverage. $600 / 10 = 60 units.
Step 4: Calculate premium. 60 units x $0.60 rate = $36.00 per month.
Why Do Rates Vary?
The "Rate per $10" is not arbitrary. It is influenced by several factors, including:
- Age: Older employees typically have higher rates due to increased health risks.
- Industry: High-risk industries (like construction) often have higher rates than office jobs.
- Elimination Period: This is the waiting period before benefits begin (e.g., 7 days vs. 14 days). Shorter waiting periods result in higher premiums.
- Benefit Duration: How long the policy pays out (e.g., 13 weeks vs. 26 weeks). Longer durations cost more.
Using the calculator above helps you estimate your payroll deductions or out-of-pocket costs for securing income protection.