How much money will an employee who earns $40,000 per year pay in annual premium if using the short-term disability plan?
| | Short-term Disability | Long-term Disability |
|----------------|-----------------------|----------------------|
| Benefit | 60% of salary | 50% of salary |
| Annual Premium | 1% of salary | 3% of salary |
Answer (2)
Calculate the premium by multiplying the salary by the premium percentage.
The salary is $40,000 and the premium percentage is 1% (or 0.01).
Multiply $40,000 by 0.01 to get the annual premium.
The annual premium is 400 .
Explanation
Understanding the Problem We are given that an employee earns $40,000 per year and the short-term disability plan has an annual premium of 1% of the salary. We need to calculate the annual premium the employee will pay.
Setting up the Calculation To find the annual premium, we multiply the employee's annual salary by the premium percentage. That is, A nn u a lP re mi u m = A nn u a lS a l a ry × P re mi u m P erce n t a g e
Substituting the Values We substitute the given values into the formula: A nn u a lP re mi u m = $40 , 000 × 1% = $40 , 000 × 0.01
Calculating the Premium Performing the multiplication, we get: A nn u a lP re mi u m = $400
Final Answer Therefore, the employee will pay $400 in annual premium for the short-term disability plan.
Examples
Understanding insurance premiums is crucial in personal finance. For instance, knowing how disability insurance works helps employees plan for income protection in case of unexpected health issues. Calculating premiums based on salary percentages, as demonstrated here, is a common practice in various insurance plans, including health, life, and auto insurance. This calculation helps individuals budget effectively and make informed decisions about their insurance coverage.
The employee earning $40,000 annually will pay $400 for the short-term disability plan premium, calculated as 1% of their salary. The calculation involves multiplying their salary by the premium percentage. Therefore, the final annual premium is $400.
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