Residual Disability Benefits in Private Disability Policies: What to Know About It
On Behalf of Disability Insurance Law Group | | Financial AdvisorsWhen considering private disability insurance, most people focus on total disability coverage, which provides benefits if you cannot work. However, many disabling conditions don’t completely prevent someone from working—they may reduce their ability to earn at the same level. This is where residual disability benefits come into play.
These benefits are designed to provide financial support when you’re still able to work but experience a loss of income due to a partial disability. Here, our Disability Insurance Law Group attorneys explore how residual disability benefits work, why they’re essential, and what you need to know when selecting a policy that includes this important coverage.
What Are Residual Disability Benefits?
Residual disability benefits provide coverage if you experience a loss of income due to a partial disability, allowing you to work still but not at your full capacity. Instead of requiring a total inability to work (as with traditional disability policies), residual benefits kick in if you cannot perform some of your duties or must reduce your hours due to illness or injury.
For example, a doctor who can no longer perform surgeries but can still see patients may face a significant drop in income. Residual disability benefits would help compensate for this reduction in earnings.
Key Features of Residual Disability Benefits
Several critical components of residual disability benefits differentiate them from total disability policies.
They include:
- Partial Earnings Protection
Residual benefits are calculated based on the percentage of lost income. If you experience a 40% loss in earnings due to a partial disability, your policy may provide 40% of your total disability benefit. This ensures that your reduced income is supplemented even though you’re still working.
- Recovery Benefits
Some policies include recovery benefits that continue to provide support as you recover and rebuild your business or career. Even if you’re back to work full-time, these benefits can help bridge the gap between your reduced income during recovery and pre-disability earnings.
- Loss of Time or Duties
To qualify for residual benefits, most policies will require that your ability to work is significantly impaired. This could mean that you’re unable to perform critical duties or working fewer hours than you were before the disability.
Why Residual Disability Benefits Are Important
For professionals and business owners, a partial disability can still have a devastating impact on income and financial stability.
Here’s why residual benefits are crucial:
- Income Protection Even If You’re Partially Disabled
For many high-income earners, a complete inability to work is unlikely. However, a partial disability, such as a back injury that prevents a dentist from working full days or a hand injury that limits a surgeon’s ability to perform procedures, can lead to a sharp decline in income. Residual benefits ensure that partial income loss is covered.
- Protects Your Standard of Living
Residual benefits help maintain your standard of living even when you’re earning less due to a disability. By supplementing lost income, these benefits ensure that medical bills, mortgage payments, and lifestyle expenses remain manageable, preventing a financial spiral.
- Flexibility in Recovery
Residual benefits allow a smoother transition back to full-time work, providing financial support during partial recovery. This flexibility prevents you from feeling rushed to return to total capacity before you’re physically ready, reducing the risk of aggravating the disability.
How to Choose the Right Residual Disability Coverage
Understanding the specific terms and conditions of a private disability policy that includes residual benefits is essential when selecting one.
Here are vital factors to consider:
- Income Loss Threshold
Many policies have a specific threshold of income loss you must meet before residual benefits begin. This might be a percentage of income (you must lose at least 20% of your pre-disability income to qualify). Make sure the threshold aligns with your risk tolerance and financial needs.
- Benefit Duration
The duration of residual benefits can vary. Some policies may offer benefits for a limited period (such as two years), while others provide benefits until the full retirement age if your earnings never fully recover. Opt for a policy with benefit terms that match your long-term needs.
- Recovery Clause
Check whether the policy includes a recovery clause that pays benefits even after you’ve returned to work full-time but still earn less than pre-disability levels. This is especially important if you’re self-employed or own a business, as recovery times for income may be longer in such cases.
- Occupation-Specific Terms
Some policies define residual disability based on whether you can perform your specific job duties, while others may be broader. If you’re a specialist in your field, such as a surgeon, lawyer, or consultant, look for “own-occupation” coverage that protects your ability to perform the specific tasks of your profession.
Residual disability benefits provide an essential safety net for high-income earners, professionals, and business owners who may face partial income loss due to a disability. By supplementing lost earnings, these benefits ensure financial stability while you recover and continue to work at reduced capacity.
Contact Our Attorney for a Free Consultation Today
If you have a residual disability policy and are facing resistance from your insurance company while attempting to claim the benefits you are entitled to, call (954)-989-9000 or contact us online to schedule a free and confidential case assessment. We can use our over 50 years of combined experience to pursue the compensation you deserve.