How do insurance companies calculate lost wages and loss of future earnings?
Calculating lost wages can be very tricky or very easy, depending upon your situation.
Here’s the easy kind. If you are injured and you have a 40-hour a week job, work no overtime, are off work for two weeks, and then go back full time, all the insurance company wants is documentation to support your claim and you should be paid for your loss. Suppose you are an office worker, and you make $40,000 a year, or $3167 a month. Your doctor tells you to take off two weeks, documents it with a signed authorization, your employer writes a letter to say how much money you lost, (about $1528), and your doctor documents when you may return to work. Your claim is for $1528—even if you used vacation or sick time. Some states only pay net wages, so they may ask for your pay stubs to calculate and deduct taxes. Most pay gross wages. But that’s it. Even if your doctor tells you you may need a couple of more weeks off, it’s easy to figure that out, too, and it’s done the same way.
Here’s the tricky kind. You were seriously injured and have missed about 3 months of work. It is estimated by your physician that you may miss about a year or more. It’s possible that your employer may not hold your job, so at the end of the year, you may find yourself unemployed. How will the insurance company calculate your lost wages and loss of future earnings? With great difficulty! So it’s up to you to document it all and prove your case. The amount you will not earn at your present job is easy to calculate—just like we did with the simpler case above. Put together the figures for what you have lost in the three months of work you’ve missed so far.
The company may or may not be willing to hold your job depending on a variety of economic factors. When future earnings are at stake, that’s where the tricky part comes in. Even if the company is willing to hold the job for a year, such variables as promotions you would have gotten, inflation, corporate reorganization, layoffs, raises, and fringe benefits, all come into play. With the possibility that your job may not still be there when you are ready to return to work, you will also need to document the time it takes you to find a new job. Perhaps the new job won’t pay as well. You’ll need to document the difference in pay, but over how long? Until retirement? Or what if you were permanently disabled by the accident and you will never be able to go back to work? Your lost earning capacity (capacity to earn money in the future) will need to be addressed.
Often, should a case be this complicated, your attorney will hire an economic expert called a forensic economist to lay out the data for your future income and the proof of your future losses. Such an expert has experience handling these types of cases. They look at such factors as age, physical or mental impairments, employment history, job skills, education, employer evaluations, earnings history and economic lifestyle. The expert then constructs a profile of past and present economic facts to begin to formulate the value you will lose in future years, using life expectancy tables if you will never work again, earnings of others with your educational and experience levels in your occupation, inflation, social security and other benefits, plus other statistical data. The economist then explains it in as simple terms as possible to the jury or in a deposition (testimony under oath but not in court) to help the jury or insurance adjuster to understand the amount of the loss.