How loss of income is calculated in a personal-injury claim

Loss of income is the difference between what the plaintiff would have earned but for the incident and what they can still earn, valued across two periods: the past (incident to the valuation date) and the future (valuation date to retirement). The past shortfall is a historical figure indexed for inflation; the future shortfall is projected, brought to present value, and weighted for the chance the plaintiff is alive to earn it. Optional contingencies and collateral benefits can reduce each period.

This article explains each piece in plain language. It is background on the method, not legal or actuarial advice for a specific file.

The starting point: without-incident income

Every income-loss calculation begins with the without-incident income: what the plaintiff would have earned each year had the incident never happened. It can be entered as a single annual figure or built from a recent earnings history. From that baseline, the calculation subtracts what the plaintiff actually earned (past) or can still earn (future), so only the genuine shortfall is claimed.

Past loss: incident to valuation date

The past period runs from the incident to the valuation date (a date you choose, for example a mediation or trial date). It is a historical shortfall, so it is not discounted for survival. Instead:

• the without-incident income is typically indexed for inflation (CPI) across the period, and
• the plaintiff's actual earnings over that time are netted off.

What remains is the past income loss. Collateral benefits received during the period (see below) can reduce it further.

Future loss: valuation date to retirement

The future period runs from the valuation date to the assumed retirement age. This is the part that is brought to present value and weighted for survival, because future earnings are only received while the plaintiff is alive and working. For the mechanics of discounting and survival weighting, see How present-value damages are calculated in Canada and, for the prescribed rate, Ontario Rule 53.09 and the prescribed discount rate for future damages.

Two adjustments commonly reduce the future stream:

• Residual earning capacity. If the plaintiff can still earn some income after the incident, that residual amount is subtracted from the without-incident income, so only the net future shortfall is claimed. A deferred start age can apply where those earnings would begin later (for example, a student not yet working).
• Contingencies. Optional, file-specific reductions for real-world risks to the earnings stream: a disability decrement (the chance of leaving the workforce due to disability before retirement) and a termination or unemployment allowance (periods out of work from job loss). Both are off unless selected.

Reduced life expectancy and lost years

Where the injury shortens the plaintiff's life expectancy, the future stream would normally stop earlier, lowering the loss. The lost years doctrine recognises that the plaintiff still lost the earnings of the working years they would otherwise have had. The stream is valued on two survival bases: the before-incident (but-for) life expectancy and the after-incident reduced life expectancy. The plaintiff recovers the but-for value less a deduction on the difference, a personal-consumption allowance for the years they will not live. The result is higher than valuing on the reduced life expectancy alone, but lower than ignoring the shortened life expectancy entirely.

Collateral benefits

Payments the plaintiff receives because of the injury (for example EI, CPP-D, or long-term disability) may offset the loss so damages are not double-recovered. They are handled per period: benefits received in the past reduce the past loss, and benefits expected going forward reduce the future loss (deducted at present value). Whether a given benefit is deductible is a legal question for the file.

Kept separate from future cost of care

Loss of income values lost earnings. It is kept distinct from future cost of care, which values future care needs, so the two are never double-counted. Some further heads of damages, such as a tax gross-up or management fees, are handled outside this figure and depend on the file.

A calculation, not an opinion

DamageIQ is a calculator. It applies the mechanics above to the income, dates, and assumptions you enter, and shows a transparent figure with every input traceable. It is not an expert opinion, and it never claims to be; the inputs and assumptions are yours to set and to verify. A signed report is produced by a retained actuary, not by a calculator; the same applies where the assumptions are in dispute.

Try it

You can generate the life-contingent present-value multipliers that future income loss rests on, for any age, gender, jurisdiction, and discount rate, with the free PV Multiplier calculator. The full DamageIQ platform builds a complete past-and-future income-loss file end to end.

By Mike Austin, FCIA, FSA. Fellow of the Canadian Institute of Actuaries and the Society of Actuaries.