An executive's pay leans on annual and long-term bonus, and someone in sales or origination earns mostly through commission and on-target earnings. A law-firm or accounting-firm partner takes income as partnership draws and K-1 earned income rather than a W-2 salary. Group long-term disability generally figures on base salary alone, so each of those pay structures leaves the larger share of compensation outside an employer plan.
As of 2026, a disability carrier generally counts income you have received and can document and leaves out contingent or unearned value. For partners, owners, and bonus-heavy earners, that makes the tax return, the K-1, and the partnership statement the records that decide how large a benefit can be.
What counts as insurable income for a partner, owner, or executive?
Insurable income for a partner, owner, or executive is earned income, the compensation received for work, which takes in salary, bonus, commission, and the earned-income portion of partnership draws and K-1 income. Equity that has vested and reached the W-2 is treated as wages as well. Contingent value that has not been received and passive income stay outside. Each row of the table gives the general treatment of one component.
| Compensation component | How carriers generally treat it |
|---|---|
| Base salary | Counted directly. |
| Cash bonus | Counted. Usually averaged over about two years to smooth a single strong or weak year. |
| Commission / on-target earnings | Counted, with the same averaging as bonus. |
| Partnership draws / K-1 earned income | The earned-income portion counts for partners and owners. Documented via K-1s and partnership statements. |
| Vested RSUs (on your W-2) | Generally counted as earned income when the vesting is consistent and documented. |
| One-time or cliff RSU vesting | Weighed more cautiously, and a single large event may be discounted rather than treated as recurring income. |
| Unvested RSUs and restricted stock | Not counted. Future value that has not been received. |
| Stock options (unexercised) | Not counted. |
| ESPP discount | Generally not separately counted as income. |
| Dividends, capital gains, investment income | Excluded from earned income. It does not offset a total-disability benefit at claim time, though unearned income above about half of earned income can reduce the benefit at underwriting. |
How are bonus and commission counted?
Bonus and commission count as earned income, and a carrier usually averages them over about two years, which smooths the swing between a strong year and a weak one. For someone whose pay is mostly on-target earnings, the averaging is what turns a variable number into a benefit a carrier can stand behind, since neither a banner year nor an off year usually sets the figure by itself.
How is partnership and K-1 income treated?
Partnership and K-1 income is credited to the extent it is earned income, and for partners and business owners the analysis runs through the K-1. A law-firm or accounting-firm partner taxed on partnership income, or an owner taxed on a Schedule K-1, has earned income that carriers will credit once it is documented through the tax return and the partnership or distribution statements. Passive distributions tied to ownership and not to work are treated differently. Getting that split right is part of why owners and partners benefit from having the file assembled carefully and not estimated from a draw figure.
What income stays out of the calculation?
Investment income stays out of insurable income and does not offset a total-disability benefit at claim time. At underwriting it can still matter, because carriers typically disregard unearned income up to about half of earned income, and unearned income above that can reduce the benefit a carrier will issue or lead to a decline. Dividends, capital gains on shares you have sold, rental income, and royalties are unearned, so they do not add to a benefit and do not offset one at claim time. For a high earner with a substantial portfolio, that means passive income does not reduce a total-disability benefit the way some group plans coordinate against other income, because individual coverage is indemnity.
Equity that has not yet become wages is left out as well. Unvested grants, unexercised stock options, and the ESPP discount are not pay for work that you have received, while vested RSUs generally count once the vesting is consistent and documented. Our RSU and equity compensation guide covers how underwriters read vesting schedules and cliff vests.
Sizing the benefit to total earned income
An individual policy can be sized to total earned income, where an employer's group plan typically stops at base salary. The monthly cap, the 24-month own-occupation window, and the taxability of an employer-paid benefit are covered in our group vs. individual guide for business and finance professionals.
Carriers set the maximum as a dollar figure tied to documented income, and the old rule of thumb that a policy replaces 60% of pay does not hold. The carrier schedules commonly put the benefit near $13,300 a month at $300,000 of income and around $18,000 at $500,000, under an occupation-class ceiling of about $35,000 a month at one carrier in the strongest non-medical classes as of 2026. Our guide to how much disability insurance you need explains the schedules and when combining carriers can raise the total.
Tax treatment adds to the case for sizing to full income. Per IRS Publication 525, "if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy aren't taxable." An individual benefit funded with after-tax dollars arrives tax-free, so it does more work per dollar than a taxable employer-paid group benefit of the same face amount. Tax treatment varies by situation, so confirm the specifics with a tax professional.
Timing the application while you are healthy matters too. Seaworthy's 2026 audit of the placed book put exclusions or ratings on about 28% of individual policies, with mental and nervous conditions the leading cause (State of Disability Underwriting), and a clean health record is what lets a specialist push back on an unjustified one. For how the definition side of coverage fits these careers, see our own-occupation guide for business and finance professionals.
What paperwork supports bonus and partnership income?
Bonus and partnership income is supported by about two years of federal tax returns and W-2s, which is what carriers generally want as of 2026 and where bonus and commission already appear as wages. Partners and owners add K-1s and partnership or distribution statements that show the earned-income portion of their draws. A steady annual pattern reads as recurring income, and a one-off bonus reads as an event and is weighed more cautiously.
How does coverage follow a partnership move or a business sale?
An individual policy follows you through job changes, partnership moves, and a sale of the business, where group coverage ends with each departure. Admission to a partnership, a move to a new firm, or a promotion can each lift income quickly, and a future increase option raises the benefit to match without new medical underwriting.
Seaworthy is independent and runs Guardian, Principal, MassMutual, Ameritas, and The Standard on every case, because the five differ in how they handle variable, equity, and partnership pay. A quote comparison shows how each sizes the benefit next to its own-occupation language and price, and our carrier comparison for business and finance professionals covers how the five handle these professions on contract language. The business and finance hub frames where compensation sizing fits among the other coverage decisions for these professions.