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Residual Disability Benefits for Partial Disability

by Michael Relvas

The residual disability benefit provided in a long-term individual disability insurance (IDI) policy is typically one of the most overlooked benefits and yet can also be one of the most valuable for consumers. When purchasing an IDI policy, it is important to consider the fact that nearly 95% of all long-term disability insurance claims are caused by illness, according to the Council for Disability Awareness. Since most illnesses do not appear or disappear overnight, it is fair to state that the probability of becoming partially disabled prior to or after being totally disabled is worthy of consideration.

Qualifying for Residual Disability Benefits
In reviewing the parameters of the residual disability benefit, it is important to understand the eligibility requirements that are commonly used to determine if you are residually disabled, and therefore eligible for residual disability benefits or not.

Loss of Income: One must be working but, solely due to an injury or sickness, experience a loss of income equal to or greater than a designated percentage, such as 15% or 20%.

Loss of Time or Duties: One must be working but, solely due to an injury or sickness, suffer a loss of time or duties. In other words, an insured individual must either be able to work but not full time, or be able to work full time but be unable to perform at least one or more of the material and substantial duties of his/her occupation.

Many of the individual disability insurance policies available today will require a loss of time or duties and a loss of income with very few that require only a loss of income trigger. The most consumer friendly residual disability benefit available today will simply require a loss of income of 15% or more, solely due to an injury or sickness, for you to be considered residually disabled and can only be found in very few policies. Included is the Residual Disability Benefit Rider* available with ProVider Plus** offered by Guardian.

How Residual Disability Benefits are Calculated
Most policies determine the residual disability benefit amounts using a similar calculation, but there are some policies that may be more advantageous than others. Generally speaking, most carriers will not pay any less than 50% of the total monthly benefit in residual disability benefits for the first 6-12 months of a residual disability claim, once you are eligible for residual disability benefits. Below is an explanation of the two most common benefit calculations:

Proportionate Benefit: Proportionate benefits are calculated based on the percentage of lost income. For example, an individual who earns $100,000 annually ($8,333 monthly), owns an IDI policy with $5,000 of monthly benefit, and experiences a 50% loss of income could expect to receive $2,500/month (50% of $5,000) If the percentage of lost income falls below 50% for a residual claim in the first 6 (or 12) months, the monthly benefit payable would be 50% of the monthly indemnity. After the first 6 (or 12) months of residual claim, the benefit will be proportional to the loss of income. In other words, if the loss of income percentage is equal to 40%, the benefit payable would be 40% of the monthly indemnity.

The Residual Disability Benefit Rider offered by Guardian with the ProVider Plus policy has a unique Loss of Income Indemnity Benefit: Benefits are calculated based on the total loss of income experienced, not to exceed the monthly benefit amount. Using a similar example, an individual who earns $100,000 annually ($8,333 monthly), owns an IDI policy with $5,000 of monthly benefit, and experiences a 50% loss of income could expect to receive $4,166/month . This is a dollar-for-dollar replacement benefit for the first 12 months that is exclusive to the ProVider Plus contract. If the residual disability continues beyond the first 12 months the individual is eligible for a Residual benefit, a proportionate loss of income benefit will be paid thereafter.

This may not seem like an enormous difference, however it can easily add up to thousands of dollars in additional benefits being paid.

Recovery Benefits Following a Disability
Simply put, recovery benefits are benefits paid following a recovery and a return to full-time work while a loss of income, solely due to injury or sickness, continues to exist. Perhaps more important to certain professionals than others, this feature can have an enormous impact on an insured’s financial recovery following a disability and should therefore be reviewed carefully. For interested consumers, it is ideal to find a policy which does not place limitations on the recovery benefits that they will pay.

For consumers who are interested in obtaining comprehensive disability insurance, be sure to review your options as they pertain to residual disability benefits. To speak with a disability insurance specialist regarding your options, call 888-513-2300 or request a disability insurance quote.