Income reimbursement

Income reimbursement is a specific insurance benefit that pays policyholders a percentage of lost wages if they cannot work due to covered events such as illness or injury. Disability insurance policies, for example, typically provide income reimbursement by replacing 60%–80% of gross monthly earnings during the disability period.

Insurers calculate income reimbursement based on pre-disability earnings, using payroll records and tax documents as verification. Short-term disability plans offer income reimbursement for durations ranging from a few weeks up to six months; long-term disability plans extend coverage beyond six months, sometimes until retirement age.

Workers’ compensation policies include income reimbursement components that pay two-thirds of average weekly wages after job-related injuries, according to state laws like California Labor Code Section 4653. Income reimbursement benefits are usually subject to elimination periods–waiting times before payments begin–which commonly range from 7 days (short-term) to 90 days (long-term).

Most group health insurance plans do not include income reimbursement unless riders or supplemental policies are added; examples include Aflac’s short-term disability rider and Guardian’s voluntary long-term disability plan. Taxation rules differ: employer-paid premiums make reimbursed income taxable, while employee-paid premiums with after-tax dollars result in tax-free benefits under IRS Publication 525 guidelines, according to a report from YourInsurance.info.

Policy exclusions apply: insurers deny income reimbursement for self-inflicted injuries or incidents occurring outside covered employment activities, as specified in policy contracts from providers like MetLife and The Hartford.