Partial Disability Benefits

The Residual Disability benefit used in a Disability insurance contract is one of the most important provisions to consider when purchasing income protection. Some insurance carriers will include residual benefits for partial disabilities within the basic policy; others will offer it as an optional policy rider. Regardless of how this benefit is offered, it is critical to be certain that your policy will pay residual disability benefits for a partial disability.

In reviewing this very important benefit, there are several things that consumers should understand and look for in the contractual language used. Every Disability insurance policy is different and not all carriers use the same guidelines, particularly in regard to residual disability benefits. We suggest you consider each of the following criteria when deciding on which Disability insurance policy best fits your needs:

Qualifying for Residual Disability Benefits

Just like a person must satisfy the requirements for total disability in order to qualify for a total benefit, one must also satisfy certain requirements in order to receive residual benefits for a partial disability as well.

Loss of Time or Duties: One of the requirements many insurance carriers use prior to providing residual disability benefits is that a debilitating injury or illness must cause a loss of time or duties, in order for benefits to be paid. In other words, the injury or illness experienced must either allow you to remain working, but not on a full time basis, or allow you to work full-time but prevent you from performing at least some of the primary duties in your occupation.

Some contracts will take this one step further and require a specific loss of time or duties such as: the inability to perform one or more of the principal duties which accounts for at least 20% of the work done in a specific occupation, or has at least a 20% or greater loss of time in an occupation.

Loss of Income: A second requirement that is very commonly used by insurance carriers is a loss of income which must be incurred as a result of the debilitating injury or illness experienced. The required loss of income will be different with every insurance carrier, but is likely to range between a 15% - 25% required loss of income in order for a benefit to be paid. Hence, a lower required loss of income (15% instead of 25%) is more likely to pay a benefit.

Consumers should be aware that each insurance carrier will use their own wording and set forth their own requirements for these benefits. As you can imagine, it is easier to qualify for residual benefits if there is only one requirement instead of multiple. Some insurance carriers will require both a loss of income and a loss of time or duties, but others will solely require a loss of income. Be sure to review this concept carefully with your Disability Income Specialist.

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Residual Disability Benefit Payments

Understanding how a residual disability benefit is paid in the event of a partial disability is just as important as understanding how to qualify for benefits. Every insurance carrier will have its own method of paying residual benefits for partial disabilities. Again, this is something that should be carefully discussed with your Disability Income Specialist.

Proportionate Benefit: The most common form of residual benefits is a proportionate benefit based on the loss of income experienced. For example, a 40% loss of income will warrant a residual disability benefit equal to 40% of your total monthly benefit. With most insurance carriers offering this type of benefit structure, there will be a minimum benefit of 50% offered in the first 6 months of a residual disability claim. After the first six months have been paid, this benefit will be reduced to a proportionate benefit and is typically payable for up to the maximum benefit period.

Total Loss for 12 months Benefit: One of the most attractive residual benefit payment structures offered today will also pay a proportionate benefit, but only beginning after a select period of time, such as 12-months, for which an enhanced benefit is payable first. Typically this benefit structure will pay for the entire loss of income experienced as a result of the partial disability, not to exceed the total monthly benefit. After the first 12 months, a continued residual benefit will be paid proportionately to the loss of income – a 30% loss of income warrants a benefit equal to 30% of the total monthly benefit.

Example:
John is a consultant earning $100,000 annually. After experiencing a debilitating injury/illness, he is forced to work 30% less hours and experiences a 30% loss of income, as a result. This graph illustrates how benefits are paid under each of the two benefit structures, for the first 12 months of a claim.

Recovery Benefits

This portion of a Residual Disability benefit should be properly reviewed and understood by any consumer interested in Disability insurance. The Recovery benefit is still a residual disability benefit and is paid following a period of total disability, when a person returns to work on a full time basis, but still experiences a loss of income (at least 15% - 25%, depending on the carrier) as a result of the debilitating injury or illness.

This benefit is specifically important for sales professionals, physicians, dentists, self-employed professionals and business owners, but can affect any salaried worker as well. Consider the effect of a business closing for an extended period of time. Even after reopening on a full-time basis, the profitability is likely to be reduced substantially. The loss of income experienced after a period of total disability can continue for months, years and may not ever return to the pre-disability level.

For this reason, the benefit period available for recovery benefits is perhaps the most important factor to be considered when comparing a residual benefit. Some carriers will limit this benefit to 6-months, others offer a 24 or 36 month benefit for an additional cost, however only a few select carriers will provide recovery benefits for the maximum policy benefit period. Considering the recovery benefit constitutes the majority of residual disability claims, having the least restrictive benefit is imperative to adequately protecting your income.

It is apparent at this point there is much more to a quality residual disability benefit than one may gather after first glance. For this reason, it is imperative that you discuss the details of this benefit with your Disability Income Specialist prior to purchasing a policy.

Call 1-800-817-4522 or request a Disability Insurance Quote today. Let one of our Disability Income Specialists assist you with understanding and selecting the best Disability Insurance option for your specific Occupation. We represent the top insurance carriers in today’s market and can assist you in comparing the contractual differences offered by each.

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800-817-4522