Base salary replacement: How the Monthly Number Is Actually Calculated

The 60% figure is the industry anchor because it roughly equals after-tax take-home when benefits are paid tax-free. Employer-paid benefits are taxable income — so the same 60% is really closer to 52% net.

The calculation

Two policies can both say ‘60%’ and pay thousands apart — the difference lives in the wage basis and the tax line, not the headline ratio.

Worked example

Take a $120,000 package that is $90,000 base plus $30,000 bonus. A ‘salary’ policy pays 60% of $90,000 = $4,500/month. An ‘income’ policy paying 60% of documented average earnings pays $6,000. Same person, same premium tier — $18,000 a year apart.

What to check in your contract

• The word after ‘disability income’ — salary, earnings or income.
• Whether employer-paid premiums make benefits taxable.
• Whether the ratio applies before or after SSDI offset.

Base salary replacement: the headline ratio is marketing — the wage basis and tax line are the contract.