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ex2-7 meredith

Assume Meredith was earning $8,000 monthly before the disability and the policy provided a $5,300 total disability benefit. If she returns to work and only earns $2,400 per month (30% of predisability earnings, or a 70% loss in income), the partial disability benefit would be $2,750 (50% of $5,500). This would result in Meredith receiving total monthly income of $5,150 (wages of $2,400 plus the disability benefit of $2,750). She would be earning nearly 65% of the pre-disability income. On the other hand, if Meredith returned to work and earned $4,500 per month (a loss of income at about 56%), the partial disability benefit paid might discourage an active attempt to earn the same amount of pre-disability income. The policy will pay the same 50% partial disability benefit of $2,750 but Meredith will be receiving total income of $7,250—which is 90% of the pre-disability income. There is not much incentive to work harder or longer to regain the lost $750 per month.