What Is Wage Loss Insurance?

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As the name implies, wage loss insurance protects employees from loss of wages suffered for reasons such as illness, accident, and disability. The insurance, sometimes referred to as disability insurance, is generally offered by employers as part of a benefits package. Some employers pay the full premiums while other employers require that employees make contributory payments.

Wage Loss Insurance

Wage loss insurance protects an employee in the case he suffers an accident or long-term illness. Based on a legitimate claim, the employee is compensated if the he cannot find work within the physical capacities of his former job (non-working wage loss) or has to return to a less strenuous job at lower pay (working wage loss). A legitimate claim must be certified by a work loss letter from a treating physician.

Payments are made once an employee has been unable to work for an unspecified time. Benefits are equal to 2/3 of the claimaint's average weekly wage. Minimum compensation is 90% of the employee's average weekly wage or 50% of the statewide average weekly wage, whichever is lower. Wage loss benefits can be offset by 50% of Social Security retirement benefits, severance pay or unemployment compensation. Additionally, payments do not calculate in cost-of-living increases.

In a case of non-working wage loss, the claimant employee must show that he has looked for work but is unable to find employment. Job search forms must be submitted to a worker's compensation board or the insurer. In the case of working wage loss, the claimant who has returned to an alternative, lower-paying job must submit pay stubs from the alternative position to the worker's compensation board or insurer.

If a non-working employee is offered a position within the employee's physical capabilities, he has the option to decline the offer. However, the benefits may be withheld or reduced based on that job. A subsequent hearing may be held to evaluate medical evidence relevant to the claimant's asserted injury or condition.

Tax Implications

Premiums Paid by Employer

If the company pays all of the premiums, the premiums are not taxable to the employee.  However, once the employee makes use of the benefits, the money is considered employment income and is taxable.

Premiums Paid by Employee

If the employee is contractually responsible for all of the premiums and pays with after-tax dollars, any benefits used are subsequently tax-free.

Premiums Paid by Employer and Employee

If the premiums are paid for by both employer and employee, the taxable amount of subsequent benefits received is reduced by the amount the employee has paid into the plan. This amount includes premiums that the employee previously paid under any employer’s plan.

Talk to an Attorney for Advice

If you have suffered a loss of wages due to an illness or accident, you may be able to collect benefits if you are covered by wage loss insurance. Benefits are dependent on the state law that governs as well as the insurer through which the insurance is issued. Additionally, payment contribution schedules are set by the employer offering the benefit. Talk with an attorney to determine the extent of possible benefits due to you.

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